- Ruto's government slashed the 2024/5 budget by at least Sh145 billion last month in a supplementary budget.
- The exchequer is expected to propose a Tax Law Amendment Bill that would empower Parliament to introduce new taxes if necessary.
Image: FILE
President William Ruto’s recent indication of potential new revenue-raising measures to address a Sh346 billion shortfall has triggered a national debate on what this means to the country's economy.
This deficit arose following the withdrawal of the controversial Finance Bill 2024, leaving the National Treasury to explore alternative means to bridge the gap.
Although Ruto's government slashed the 2024/5 budget by at least Sh145 billion last month in a supplementary budget and raised borrowing for the year to Sh767.2 billion to plug the budget hole, the exchequer insists that this is not enough.
The cuts consisted of Sh40 billion for recurrent expenditure and Sh105 billion for development.
The exchequer is expected to propose a Tax Law Amendment Bill that would empower Parliament to introduce new taxes if necessary, outside the Finance Bill that amends individual laws that create various taxes.
While taking over the office a week ago, the new exchequer boss John Mbadi said that some of the proposals in the rejected Bill were good for the country.
“There is no emergency. We have a legal framework in place to collect our taxes. We must find a way to reintroduce certain progressive elements from the Finance Bill 2024 in a manner that promotes growth and streamlines tax administration,” Mbadi said.
"We can now put together some of the good provisions and see how to take them back to Parliament, not as a Finance Bill but as other proposals."
According to him, the tax amendment Bill will include dozens of measures including a tax on goods considered not environmentally friendly.
"This country is not a dumping place," he said.
To foster eco-friendly practices and promote its green agenda, the Kenyan government had proposed a stringent Eco Levy, which, unlike previous macro/corporate interventions, aimed to curb micro-pollution and waste management at the office and household level.
Besides targeting the usage and disposal of everyday office and household items, the tax sought to address e-waste pollution.
It, for instance, recommended that those who intended to import plastics into the Kenyan market pay an extra fee of Sh150 per kilo.
The Bill proposes to introduce an Eco Levy on plastic packaging materials at Sh150/kilo, diapers at Sh98/unit, office machines at Sh98/unit, calculating machines at Sh225/unit and automatic data processing machines at Sh225/unit,'' part of the proposal read.
Others included arts and accessories at Sh98/unit, telephones (including smartphones) at Sh225/unit, microphones and speakers at Sh98/unit, and monitors & projectors at Sh1, 275/unit.
The stringent Eco Levy aimed to enhance existing weaker and less effective waste and pollution control mechanisms, such as the Extended Producer Responsibility (EPR) regulations that Kenya embraced two years ago.
The EPR is a comprehensive global framework designed to hold manufacturers accountable for the entire lifecycle of their plastic and electronic products.
It led to the establishment of several Producer Responsibility Organisations (PROs) that collect EPR fees — a measly Shh10 on average per kilogram of plastic imported — from their members as per the country’s Sustainable Waste Management Act of 2022.
The reintroduction of the levy will have far-reaching implications on the prices of basic commodities, considering that Kenya is largely an import economy.
Although the proposal was welcomed by environmentalists and related national agencies, such as the National Environment Management Authority (NEMA) as a step in the right direction, the Kenya Association of Manufacturers harshly opposed it.
The manufacturer's lobby says the levy will increase prices for all plastic packaging materials, batteries, and hygiene products.
For instance, the Sh150 levy per kilogram of plastic packaging will increase the cost of a 400-gram loaf of bread by Sh9 from Sh65 to Sh74 and a litre of cooking oil by Sh16.81 from Sh300 to Sh316.81.
"It will also raise a kilo of power detergent by Sh30 from Sh200 to Sh230 just to mention but a few.''
Earlier on, the Ministry of Environment, through principal secretary Festus Ng’eno argued that Kenyans are exposed to harmful substances, and the resulting treatment costs have significantly strained limited public resources.
“The proposal to introduce an Eco Levy on problematic waste streams is not just another tax, but a strategic tool designed to encourage sustainable practices, fund waste management programmes, and promote environmental stewardship across the country,” said Ng’eno.
Mbadi has also defended the proposal that sought to increase excise duty on sugar imports from Sh5 to Sh7.5 per kg, stating that it was designed to support local farmers.
"Why would one reject an amendment to increase excise duty on imported sugar from Sh5 to Sh7.5 per kg to protect our sugar industry, just because it was in the Finance Bill 2024? Those are progressive provisions in the law,” Mbadi said.
Even so, consumer bodies fear that if re-introduced in the planned tax amends, it will push up the cost of the substance for ordinary Kenyans.
Kenyan sugar millers experienced a 40 percent decline in production during 2023, reaching a four-year low, primarily attributed to shortages in sugarcane, thereby exerting pressure on the sweetener’s prices
Data released by the Kenya National Bureau of Statistics (KNBS) shows a decrease in domestic sugar output to 472,773 tonnes in the 12 months ending December 2023, a notable drop from the 796,600 tonnes recorded the previous year.
"We largely rely on imports to cure our perennial sugar deficit. The suggested increase in excise duty will exert undue pressure on households, reeling from the high cost of living,'' Tom Owello of the Consumer Grass Roots Association told the Star.