Kenya’s Economic Stimulus Package – The Devil in the Details

It is one thing to announce an economic stimulus package. It is quite a different thing to implement it. It is yet another different thing to measure the impact. With the COVID-19 starting to bite, President Uhuru Kenyatta announced a stimulus package as March drew to a close and a very uncertain April started. It aims to shield Kenyans during these tough times and also ensure that the economy grind ahead slowly and that when the dust settles (or reduces), we can still forge ahead.

100% per cent tax relief (monthly gross income of Ksh 24000/USD 225)

Kenyans in this category will save Ksh 1,414 (USD 13) and this should help them in purchasing essential supplies such as food. This should be enough to purchase 1 litre of cooking oil, 2 kilos of rice, 100 grams of tea leaves, 2 litres of milk, 4 kilos of maize flour, 2 kilos of rice, 1 kilo of sugar, 1 kilo of beans and 1 kilo of green grams. Work out how long a family of 4 will take to eat through that.

PAYE from 30% to 25%

A 5% reduction is better than nothing and that is where we shall leave it. To place the reduction in context, half of employed Kenyans earn less that Ksh 30,000 (USD 280) according to the Kenya National Bureau of Statistics hence a 5% reduction is a couple of dollars for the month. The Kenyans in this range also happen to be the ones who need the relief most. The relief will however be perceptible for those who earn top-dollar. Well, those who have much will have more added unto them. Those who have little will have even the little taken away from them.

Resident Income Tax from 30% to 25%

Here, the effect will be felt. The income brackets are typically higher so a 5% reduction should be material. Again, it will go to those who do not feel the pinch too much. Perhaps the government was just balancing the optics to give the impression of fairness across board.

Turnover tax reduced from 3% to 1%

The moneyed political class that also controls the economy should be happy about this. It is a significant drop in tax and the president, his deputy, ministers and members of parliament have protected their enterprises well in this regard. This is where the big bucks game is played and shaving off 2/3 from the tax rate is sure to be appreciated wherever the rich and powerful congregate. The gap between the haves and the have-nots will remain…or even increase.

VAT from 16% to 14%

Some items were already VAT exempt and these are the ones that people need mostly for basic survival. Items such as milk, eggs, meat, rice, maize, bread, beans, unprocessed vegetables, tubers, infant food formula, medicines, fertilizers and sanitary towels do not attract tax. Utilities such as electricity fall into the VAT-able bracket so there would be some relief there. Essentially, this reduction is a feel good cut and it seems the more things change, the more they remain the same.

KSh 10Bn (USD 94.4 Mn) cash-transfer for Elderly and Other Vulnerable members of the Society

This is a good move. Hopefully the funds will be disbursed in a timely manner and will reach the intended recipients in a manner that makes a difference in their lives. In November 2019 it was announced that USD 87.4 Mn was transferred for the elderly and orphans. As such one would hope that the processes have already been fine-tuned to ensure that this wave of disbursements goes smoothly given the urgent purpose.

Pay Cuts for President, Deputy and Cabinet Secretaries

The President and his deputy will take an 80% pay cut while Cabinet Secretaries will take take a 30% pay cut. Past experience has shown that these declarations sometimes do not materialise. In any case, even if they come to pass, they are a drop in the ocean when we put government expenditure in context.

In summary, we should ask ourselves who feels the biggest pinch in a time like this. Conversely, who is getting the lion’s share of of the goodies in this package.

The informal sector (jua kali) that does not fall into the PAYE system and lives day to day is suffering. The low-wage earners are also in this boat. The jua kali artisans, for example, need to go to work every day otherwise they do not get to feed their families. They also happen to be the people who do not have fridges and such conveniences to stock up on supplies hence life for them is extremely difficult and they bear the brunt of this lockdown in a deeply personal fashion, much more than well-fed government mandarins can appreciate. Their food, transport costs, rent and other utilities largely remain unaffected by this package. Their flexibility in earning is curtailed. They truly are between a rock and a hard place.

There is thus a lot to say but little to celebrate.


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