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Tuesday, February 27, 2024

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IMF backs Ruto’s rollout of new taxes amid backlash

IMF in support of the phased rollout of new taxes in Kenya and other African countries amid high economic times.

In response to public outrage, the International Monetary Fund (IMF) has advised governments in sub-Saharan Africa, notably Kenya, to introduce new tax measures gradually.

The international lender points out that a government’s capacity to sway the public depends on the viability of new programs.

“Sustainability of new policies depends on the government’s ability to win over public opinion either by showing that reforms generate rapid benefits or by making a case for their desirability on longer-term grounds,” the IMF notes in a policy paper published on Tuesday.

The IMF also advises deferring challenging budget adjustments until favorable macroeconomic circumstances and mitigating measures are in place.

The call for new tax reforms to be implemented in stages comes amid a heated public debate on recently passed tax legislation, particularly the implementation of the 2023 Finance Act.

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Provisions in the Act, such as the adoption of a new development tax, paid at 1.5 percent of gross salaries and matched by employers led to public petitions that threatened to derail the revenue mobilization strategy. 

The Act also doubled the VAT on petroleum products.

The public has equally harshly criticized subsequent tax plans included in the draft Medium Term Revenue Strategy, which is currently in the public involvement stage.

A treasury policy document has recommended removing of pay as you earn reliefs, which will result in a further decrease in the take-home pay for salaried workers.

Additional proposals such as the Unemployment Insurance Authority Bill, which proposes a deduction of three percent of salaries to provide for a stipend to employees declared redundant have also drawn comparable criticism.

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