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Raising taxes and paying down the debt, the President wants to stabilise the economy before the next election
As a candidate ahead of last August's presidential elections, William Ruto opposed a housing levy and new fuel taxes. Eight months after winning, President Ruto has introduced both as part of a tough finance bill. He aims to boost revenue so the government can meet its debt repayment obligations (AC Vol 64 No 9, Ruto's credit slumps amid cash flow crisis & Dispatches 18/4/23, Dialling for dollars).
Once Ruto had ruled out debt restructuring, tax rises looked inevitable. These proposals in the 2023 Finance Bill, are the basis of the national budget for the 2023-24 financial year, which starts in June. They include doubling the Value Added Tax on fuel to 16% and a 3% housing levy on workers' gross monthly salaries.
The VAT rise is one of nine fuel-related levies.
These fuel levies will hit poor households hardest. Kerosene, used for cooking and lighting by households without electricity, has increased by 15 Kenya shillings (12 US cents) a litre.
The moves on fuel prices will be welcomed by the IMF, which has urged Kenya to end fuel subsidies by October as part of its $2.34 billion loan agreement.
Yet they are politically risky. Higher fuel prices, excise duties and advance taxes on trucks and trailers will sharply raise operating costs for independent traders and small businesses. They are Kenya's 'hustlers' who were at the centre of Ruto's election pitch.
Plans by Ruto's predecessor, Uhuru Kenyatta, to introduce a 1.5% housing levy were blocked by his opponents. It's unlikely to happen this time. MPs from Ruto's Kenya Kwanza alliance insist they have easily enough votes to push through the bill.
Sources close to the government says the country faces two years of austerity measure before its debt obligations ease after 2025 – enough time to open the taps before the elections in 2027.
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