The spending power of the average household has fallen massively within a very short period. As a result, the population is facing one of the worst cost of living crises in recent history.
The government is going to find itself increasingly facing pressure to do something meaningful to help households financially through these grim times.
Indeed the impact of the war in Ukraine war remains a big risk to the stability of the macroeconomy. I gather that the Kenya Tea Development Authority has just awarded a fertiliser contract to a Russian company at prices that are nearly 30 percent of previous contracts.
It remains to be seen how the authority will circumvent the incumbent sanctions to close this deal.
Whichever way it goes, the impact of fertiliser prices on tea production costs will be crippling. Already the prices of wheat, rice and cooking oil have soared beyond previous highs.
On top of this, we are still suffering from rocketing energy prices brought about by decades of policy failures by successive governments and an oligopolistic oil-importing sector that operates as an official cartel.
Although the shilling has performed relatively well against the Sterling Pound, the euro and the South African rand, it has weakened precipitously against the US dollar, the main currency of international trading.
Track the movement of prices of kerosene, cooking gas, charcoal, matatu fare, bread, clothing and house rent and you have a clear picture of the damage inflation is doing to the pockets of the ordinary man and woman in this country.
We have reached a point where makers of tax policy in this country must urgently go back to the drawing board to carry out a comprehensive and empirical study on the implications of high excise duties on consumption and on aggregate demand within the economy.
Tax policymakers take easy lazy policy choices. That is why they always resort to persistent increases on wine, beer and spirits. Today the conventional practice and wisdom is that countries must pay attention to the level of prices charged in neighbouring countries when setting excise rates.
Only a foolish tax policy maker will set its excise tax rates in isolation and without looking at rates applied in jurisdictions to which domestic consumers have access.
Yet our policy makers have allowed excise duties on beer and alcoholic beverages to soar way beyond the levels in Tanzania, Uganda and Rwanda. Excise rates on beer in Tanzania are three times less than they are in Kenya. In Uganda, excise rates on beer are five times less.
As a result, consumer prices of beer in Kenya are way higher than the prevailing prices for beer, wines and spirits in the two neighbouring states. The upshot of all this has been cases of increased entry of contraband into Kenya.
There have been newspaper stories about how consumers of beer and petroleum products in places like Busia, Malaba and Tarime have — instead of shopping at home — resorted to crossing borders in large numbers to access cheaper products in the neighbouring tax jurisdictions.
And the makers of tax policy have not been sensitive to sectors of the economy that bore the brunt of the lockdowns and recessionary conditions by the pandemic.
Indeed, no sector of the economy of this country suffered from the coronavirus lockdowns and movement restrictions more than pub owners, alcoholic drinks manufacturers and the hospitality industry in general.
What is needed right now are tax policies to guide the manufacturing sector to pre-pandemic levels of production and productivity.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
