This archive report was first published on 16 June 2020.
June 16, 2020 - The COVID-19 pandemic has taken a significant toll on Kenya's economy, with the National Treasury revising the country's economic growth to a lower rate of 2.5 percent from the 5.4 percent growth in 2019.
Despite the government's efforts to intervene, experts at Ernst and Young argue that the measures are not sufficient to jumpstart the economy. According to Christopher Kirathe, a tax partner at the audit firm, at least 4 percent of the GDP (393.7 billion) should be injected into the economy, as opposed to the 2 percent of GDP which has been injected in form of foregone taxes and direct liquidity injection.
“At least 4 percent of GDP is required to jumpstart a battered economy like ours. On the basis of this, the government intervention falls short by about Shs 170 billion,” Kirathe said.
The government has introduced various tax measures, including the reduction of the income tax rate (Pay-As-You-Earn) from 30 percent to 25 percent and a hundred percent tax relief for persons earning a gross monthly income of up to Sh24,000. However, Kiraithe has predicted looming pressure from IMF and World Bank to reverse these measures, which he says will further pile uncertainty for businesses.
Ernest and Young experts share the same concerns, highlighting that Kenya's volatile tax base is sharply disrupted by the virus. “The above matters, combined, project a period of higher spending and lower tax revenue, which has the potential to undermine Kenya's fiscal balance and Kenya may suffer from a phenomenon known as “scissors effect”, he said.
