Kenya has suffered five consecutive years of business closures linked to high taxes, with critics blaming government “intrusion” and recently Nairobi receiving $941 million from the International Monetary Fund. obtained a loan.
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According to data from the Business Registration Service (BRS), around 2,000 companies ceased operations in the last financial year due to high operating costs and uncompetitive taxes. Some companies have been forced to downsize in order to survive.
To replenish Kenya's cash-strapped economy, President William Ruto introduced new taxes and reformed the country's tax system last year.
Ruto was elected on a promise to reduce borrowing, but his tax reforms were deeply unpopular with families and businesses struggling with rising prices for basic goods.
feel the pinch
In Githunguri, a rural town in central Kenya's Kiambu county, Peter Mwaura, a former alcohol distributor who turned to pig farming, claims excessive license fees, taxes and bribes have made his business unsustainable.
“I worked to pay taxes, even for the small profits I earned. [police] The officers were asking for bribes so that I could work beyond the stipulated hours,” Mwaura told RFI.
“I decided to close down the business and try my hand at pig farming. Even though feed prices are high, it's overall better than the beverage business.”
Meanwhile, in the capital Nairobi, electronics companies are struggling to survive amid falling demand and rising costs of goods.
Authorized iPhone seller Steve O'Meli was forced to reduce his inventory after the price of the phones he sold rose 20% in less than a year due to higher import and excise taxes.
“The number of mobile phones we sell per day has decreased significantly…The prices are too high,” Omeli told RFI. “We can't stock as many devices as we used to.”
Economists say new taxes and charges could deter investors, especially as the Kenyan shilling has hit new lows against the dollar and euro, making it cheaper to do business in neighboring Tanzania and Rwanda. He warns that this is a possibility.
Taxes are “necessary”
The Kenyan government continues to defend its new tax law, the Finance Act 2023, arguing that everyone needs to pay taxes for economic growth.
Patrick Munene, a member of parliament for Chuka-Igamban-Ombe constituency in the east, told RFI that the tax increase had actually led to more companies being set up in the past year.
“People who thought it was the government's duty to ease their burden by not paying taxes are crying,” he says.
“Ignore the lies people are saying about investors fleeing Kenya. The only thing the government needs to address is the high cost of electricity that is impacting manufacturing.”
Meanwhile, international financial institutions such as the IMF and the World Bank support the government's tax overhaul despite widespread public outcry when the rules came into force last year.
mixed reaction
Edwin Kegori, a policy analyst at Nairobi's Moi University, says the new tax strategy is helping to protect Kenya from a debt crisis.
” [$2 billion] The new loan will help Kenya pay down its debt as the Eurobond matures in June,” Kegori said.
“If we look at the agricultural sector, things are looking up. Subsidized fertilizer and agricultural inputs have helped farmers increase yields.
“Within a year Kenya will be exporting agricultural products and the situation will return to normal.”
But other experts remain skeptical, warning that Kenya's political leaders often fail to keep their promises because they are rarely held accountable.
“President William Ruto has promised to deal with corrupt leaders, lower the cost of living and reduce government borrowing if elected,” Nairobi-based economist Isaac Mutiso told RFI. .
“As we speak today, he has a $941 million loan. This money will be gobbled up by his corrupt cronies in his government as we fight the cost of living.” It will be.”
