Deadly tax protests leave Kenya facing IMF fallout
A contingent of security officers deployed on Parliament Road to restrain protesters from accessing Parliament buildings moments before they were overrun on June 25, 2024.
Parliament Tuesday approved the controversial Finance Bill 2024, backing recommendations to withdraw some taxes, including on bread, airtime and cars, that were part of a package of reforms Kenya had agreed to implement in a deal with the International Monetary Fund (IMF).
Voting on the amended the revenue-raising Bill was marred by deadly street protests against tax hikes in Nairobi and other Kenyan cities and towns that saw demonstrators storm Parliament and set a section of it on fire, forcing legislators to be evacuated.
At least 10 protesters were shot dead by police, some of them around Parliament buildings.
Kenya has also promised the IMF to link its Kenya Revenue Authority (KRA) system to mobile financial platforms to weed out tax evaders and boost revenue by billions of shillings.
But MPs weakened the plan, which was to take effect in July, after they rejected a clause giving the KRA unfettered access to personal data that is critical for spying on suspected tax cheats.
President William Ruto, who has come under pressure from waves of protests from youthful, mostly Gen Z demonstrators, has been caught between the competing demands of lenders such as the IMF, which is urging the government to cut deficits to obtain more funding, and a hard-pressed population.
“[The] measures include the adoption of a motor vehicle circulation tax, removal of several exemptions on interest income, reduction of tax expenditures on VAT and import duties; increases in excise rates for money transfers and telecommunications data services,” said the IMF report released in January.
The IMF had in the report admitted some of the measures contained in the programme, and some of which are in the Finance Bill, could trigger unrest.
“Unrest could re-emerge in connection with protests against higher cost of living, need to raise more taxes, and electoral process supported by the political opposition,” said the IMF.
The IMF’s advice to the government, in case of unrest was: “Remain committed to reforms under the programme.”
Parliament will now forward the Finance Bill to the President for signing. He can send it back to Parliament if he has any objections.
Kenyans, including industry groups, have widely criticised the legislation, saying it adds punitive new taxes and raises others on a wide range of goods and services that would escalate the cost of living.
The protests, which began in Nairobi last week, spread to other major towns and cities such as Kisumu, Nakuru, Eldoret, Nyeri and Mombasa and were witnessed in more than half of the 47 counties Tuesday.
President Ruto made a TV address on the protests last night, terming Tueday’s march on Parliament an act of treason and vowing to deploy security to crush the protests.
Demonstrations in Kenya have typically been mobilised by political leaders who have been amenable to negotiated settlements and power-sharing arrangements, but the young Kenyans taking part in the current protests have no official leader and have been growing increasingly bold in their demands.
The protests have been guided by younger people who have used social media platforms like TikTok and Instagram to initiate a leaderless movement that has galvanised the nation.
The government has already made some concessions, scrapping proposed new taxes on bread, cooking oil, car ownership and financial transactions. But that has not been enough to placate protesters.
Some of the scrapped taxes are part of a programme that Kenya has with the IMF, which is aimed at easing the country’s debt risks via increased taxes and cutting non-essential spending in a process known as fiscal consolidation.
Kenya had committed to introduce the new taxes as part of the conditions for the 38-month programme, failure to which the two parties might be forced to go back to the drawing board. The country had also promised the IMF to link the KRA’s digital system with mobile phone financial platforms, a plan that got a lift through a clause in the Finance Bill that allowed mining of personal data without a court order.
But MPs rejected the data mining proposal, arguing it was in breach of the Data Protection Act.
The adoption of electronic invoicing on the eTIMS platform by all suppliers, another item in the IMF-Kenya deal aimed at boosting tax compliance, was also diluted, with MPs exempting small businesses and farmers.
Kenya and the IMF had also agreed to streamline tax expenditures—foregone taxes—with the Treasury promising to disallow alcohol manufacturers from claiming refunds on excise duty charged on inputs such as ethanol and glasses in the Finance Bill.
The Treasury had told the IMF that these measures were to be introduced in 2024 to help raise more taxes and reduce budget deficit. President Ruto has vowed to increase collection of taxes to 20 percent as a percentage of the gross domestic product (GDP) by the time his first term comes to an end in 2027.
The motor vehicle tax, increased excise duty on mobile money transfer and airtime and removal of several exemptions on interest income, reduction of tax expenditures on VAT and import duties, were supposed to be included in the Finance Act 2023 but were delayed with the Treasury re-introducing them in proposed revenue-raising measure for the fiscal year starting next month.
Kenya and the IMF had also agreed to streamline tax expenditures—foregone taxes—with the Treasury promising to disallow alcohol manufacturers from claiming refunds on excise duty charged on inputs such as ethanol and glasses in the Finance Bill.
In the Finance Act 2023, the government increased VAT on petroleum products to the standard 16 percent, another of IMF’s proposals that was initiated under the previous administration of Uhuru Kenyatta.
Dr Ruto, whose first task after ascending to power was to phase out fuel subsidies in line with IMF’s conditions, refused to shelve the Financial Bill despite its unpopularity among Kenyans.
While citing political risks in the January report, the IMF also expressed confidence about the current administration’s support.
“However, commitment from the highest political level of necessary policy actions and good prospects for additional external financing from development partners are expected to mitigate those risks,” said the report.
“Despite multiple large shocks over the past two years, the authorities have adopted difficult but warranted policy measures aimed at addressing Kenya’s debt vulnerabilities, a key objective under the programme.”
The IMF and World Bank have been accused of pushing punitive austerity measures likely to stall growth and increase the cost of living in a fresh attack against neoliberal values beloved by the two Bretton Woods institutions.
