Re-introduction of taxes on pensions for retirees aged 65 years and above is morally incorrect.
These are senior citizens who have to incur huge medical expenses due to chronic health conditions.
Hardly any medical insurer is willing to cover citizens above 65 years. At their age the pensioners can hardly engage in side "hassles" for incremental cash.
One could easily "smell" IMF inputs in last week budget pronouncements. And when IMF visits town it is usually to answer a distress call. This time around the Treasury appears to need IMF to help massage a budget which is unwilling to balance.
Kenya has a long history of IMF budgetary interventions. In 1990s President Moi sought IMF budgetary support at a time when Kenya's macroeconomic metrics (debt, inflation, balance of payments, exchange rate) were all upside down, mostly due to massive corruption. The IMF prescribed significant structural economic reforms, some of which have continued to negatively impact Kenya.
In early 2000s President Kibaki was determined to keep away the Bretton Wood institutions. This he successfully achieved through budgetary discipline, reduction of corruption, while turning to alternative bilateral development support from China. When the Jubilee government arrived they found the Chinese coffers still open and did not immediately need the IMF.
I guess it is the Chinese and other commercial debt burdens that are now forcing the Treasury to invite IMF support. By coincidence, Corvid-19 also happens to be visiting, making IMF budgetary support even more urgent. It is evident that IMF has given the Treasury an "all historical tax exemptions must go" prescription among others.
I will discuss three tax exemption reversals announced last week which I consider unwise. These exemptions were grounded on solid government policies which I am sure have not changed.
Re-introduction of taxes on pensions for retirees aged 65 years and above is morally incorrect. These are senior citizens who have to incur huge medical expenses due to chronic health conditions. Hardly any medical insurer is willing to cover citizens above 65 years. At their age the pensioners can hardly engage in side "hassles" for incremental cash.
When President Kibaki introduced tax exemptions on senior citizens pensions in early 2010s, it was for moral obligations to help senior pensioners who have tirelessly contributed to build Kenya to where it is today. I have not seen the amount of revenues that the Treasury will collect from senior citizens, but I bet it is insignificant compared with resultant negative social impacts on this very vulnerable group of Kenyans. I am sure the Treasury, and indeed Parliament, will understand why taxation of senior citizens pensions should not proceed
Secondly, we have the reversal of tax exemptions on keg beer which is made from locally farmed sorghum. This is the second time that keg beer tax reversal is happening. The critical policy driver for low keg beer taxation is to provide affordable liquor to low income citizens who would otherwise revert to unhealthy illicit drinks which have historically claimed many lives.
The other policy driver is social-economic in support of increased jobs and household incomes accrued from sorghum value chain that includes farming, keg beer brewing and distribution. In Nyanza counties sorghum farming is already a success story as it spreads to other regions. And this is supported by increasing capacity at the Kisumu brewery, a perfect case-study of public/private sectors cooperation to drive agro-industrialisation.
The third tax reversal that is open to debate is re-introduction of VAT on LPG. There are as many as four government policies that support making LPG more affordable and available in all parts of Kenya. Removing taxes was one of the fiscal interventions to support policies to increase LPG use.
If the Treasury must tax LPG, the small six-kilo package should be spared, as this is the cylinder size that mostly targets the policy focus groups (lower income rural and urban populations). Yes, from a policy point of view, the users of 13-kilo LPG cylinders and also bulk LPG consumers may indeed not be deserving VAT exemptions.
If it is administratively and operationally practical, the six- kilo packs should be isolated to enjoy tax exemptions.
I must acknowledge that Cabinet Secretary Yattani has so far done an excellent job in tidying up the Treasury and budgetary processes, an opportunity missed by the first Jubilee team at the Treasury.
However, he now needs to stand up to IMF and question some of their tax prescriptions, especially the one on senior retirees pensions.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
