How IMF predicted public rage over Kenya tax hikes
A police officer reacts after using teargas to disperse protesters during a demonstration over police killings of people protesting against the finance bill 2024 in Nairobi, Kenya on June 27, 2024.
The International Monetary Fund (IMF) foresaw emergence of street protests resisting controversial tax proposals which it backed, with the demos ending with withdrawal of the Finance Bill 2024.
The IMF had asked the government to stand firm on new revenue-raising measures despite the protest as it assessed the risk as medium.
The multilateral lender’s assessment of the risk of pushback has escalated as street protests, led largely by the youth, turned deadly forcing President William Ruto to refer the Bill to Parliament with a recommendation to drop all clauses on Wednesday.
IMF in its latest report on Kenya had seen unrest arising largely from political opposition but asked the government to ‘remain committed’ to reforms under its programme.
“Unrest could re-emerge in connection with protests against higher cost of living, need to raise more taxes, and electoral process supported by the political opposition. Any deterioration in the security situation could disrupt trade and tourism,” the IMF indicated in the January report.
IMF had a similar premonition last year when Kenya lined up a new set of taxes after the High Court blocked the Finance Act of 2023.
The Kenya Kwanza administration came up with new measures including motor vehicle circulation tax, excise, and value-added tax (VAT) measures in a contingency plan to fund the then Sh3.68 trillion budget in the absence of new revenue-raising measures.
The Plan-B incidentally formed part of the originally submitted 2024 Finance Bill where the State for instance proposed introduction of a new motor vehicle circulation tax set at 2.5 percent of car valuations.
The National Treasury also proposed the clean-up of VAT-exempt and zero-rated lists which would have seen critical items such as bread attracting value-added tax at 16 percent.
The government has nevertheless been forced to pull the plug on the entire finance Bill after deadly street protests this week, ceding to public calls to reject the proposals.
Withdrawal of the Bill has put the government at loggerheads with the IMF which wanted the administration to follow through with the new tax measures notwithstanding opposing views.
Thursday, the IMF indicated it was monitoring the 2024 finance Bill fallout and that it remained committed to supporting Kenya.
“The IMF is closely monitoring the situation in Kenya. Our main goal in supporting Kenya is to help it overcome the difficult economic challenges it faces and improve its economic prospects and the well-being of its people,” IMF Director for Communications Julie Kozack noted in a statement.
The official said that the IMF was “deeply concerned” about events witnessed in Kenya in recent days leading to deaths, many injuries, and destruction of property.
“Our thoughts are with all the people affected by the turmoil in the country.”
“We are committed to working together with Kenya to chart a course towards robust, sustainable, and inclusive growth,” she said.
