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World Bank sees strain in new taxes push, reforms after GenZ protests
The government is counting on the broadening of the tax base and technological transformation to increase revenues in the absence of new taxation measures.
The World Bank Group expects President William Ruto’s government to face difficulties in introducing new taxation measures and other policy interventions in the shadows of the youth-led anti-government protests.
The multilateral lender has deemed the June uprising against the Finance Bill, 2024 as a ‘loss of political capital’ for the Kenya Kwanza administration, which has failed to address key grievances among the public including graft and high unemployment among the youth.
World Bank Chief Economist for Africa Andrew Dabalen says new tax and policy reform measures must seek to address the protesters' grievances if they are to pass the test of public acceptance.
“The lesson is not to really stop doing reforms or retrench from reforms, but do reforms that are bold and that are going to lead to the kind of things the protesters are asking for-transparency, good governance, and a kind of economic management that is going to be geared at creating opportunities for the young people. That, I think, is the core demand that young people are making,” he told Business Daily on Monday.
President William Ruto was forced to abstain from signing the Finance Bill, 2024 into law after Kenyans led by the youth stormed the streets to reject the new taxes in protests that turned deadly at the end of June.
The exchequer had sought to push through controversial tax measures including the application of a motor vehicle circulation tax and the VATing of bread at 16 percent.
The withdrawal of the Finance Bill following the protests led to a Sh346 billion revenue hit and resulted in far-reaching economic consequences including a downgrade from both Moody’s and S&P Global credit rating agencies and the delay in new funding from the International Monetary Fund (IMF).
The World Bank has deemed the abandonment of the 2024 Finance Bill as the loss of the administration's influence or sway on the public.
“The high cost of living, mistrust of the government, and the perception of economic and social exclusion triggered protests in Kenya, Nigeria, and Uganda- unrest that could spread throughout the region. The need for policy credibility and stability is highlighted by the recent social tensions in Kenya, where the attempt to establish fiscal credibility was undermined by the lack of political capital necessary to see those policies through, leading to large policy swings that further undermined growth and stability,” the World Bank notes in its just published Africa economic update.
The government was forced back to the drawing board having lost its quest to bring new taxes, trimming its spending plans while raising its borrowing target to cover the hole left behind by the rejection of the Finance Bill.
Spending for the 2024-25 financial year was for instance slashed to Sh3.88 trillion from 3.99 trillion previously while the net financing projection was raised to Sh768.6 billion from Sh597 billion previously.
The budget cuts affected key expenditures including spending on development projects and transfers to county governments.
The exchequer also cut its estimate for tax revenues from Sh2.91 trillion to Sh2.63 trillion signifying the effect of the withdrawal of new taxes.
The government is counting on the broadening of the tax base and technological transformation to increase revenues in the absence of new taxation measures with the view of raising the share of revenues as a percentage of GDP.
The economy is however still ailing from the impact of the anti-Finance Bill protests with the first quarter government revenue collections for the 2024/25 fiscal year for instance growing at the slowest pace in at least a decade from Sh514.26 billion from Sh525.55 billion.
Business conditions took a hit during the stay of the weekly protests as premises were either looted or forced to stay shut, especially in the Central Business District, affecting both profits and turnover.
