Kenya has in the past few days faced civil unrest as its Gen Z citizens protest against the proposed Finance Bill 2024, which aims to increase VAT to 16% to generate revenue for national debt repayment. Tragically, about ten lives have been lost, with reports of armed forces using live ammunition against peaceful demonstrators. Despite President Ruto receiving the bill from the committee after the last hearing, he vetoed it, asking Parliament to revisit the bill, which was later followed by a withdrawal. This is in an effort to balance the Gen Z’s will with Kenya’s current debt situation.
This article examines the potential future outcome of the Finance Bill 2024 if passed into law, focusing on its impact on Kenya’s economy and technological ecosystem.
Economic Impact of Protests
Kenya is one of Africa’s Big Four in the technological landscape, alongside South Africa, Nigeria, and Egypt, with major companies like Safaricom and KCB Group signaling the potential damage of the proposed VAT increase. The recent protests, which have lasted for several days, have already caused significant economic disruption. Businesses face increased costs not only from operational interruptions but also from heightened security and insurance expenses in an unstable environment.
Government Debt and Revenue Extraction
The government’s strategy to increase VAT by 16% aims to pay off debts owed to Western countries like the United States and Asian nations such as China. However, this approach could lead to unsustainable operational costs for companies. Higher taxes and labor costs might force businesses to exit the Kenyan market, leading to massive layoffs and a surge in poverty. This economic strain could diminish the government’s ability to extract revenue from its citizens in the long run, exacerbating the debt situation.
Social Stability and Global Peace Index
The proposed VAT increase could also negatively impact Kenya’s ranking on the Global Peace Index, currently at 117 according to the Institute for Economics and Peace (IEP) in 2023. Economic hardship often correlates with social unrest. Increased poverty and unemployment could fuel more frequent and intense protests, further destabilizing the nation.
Risks to Kenya’s Technological Ecosystem
Kenya has made substantial progress in its technological ecosystem, but this progress is at risk. Major players in the tech sector, such as Safaricom and KCB Group, might struggle with significantly higher operational costs, deterring investment and stifling innovation. This could lead to a potential exodus of companies from the market, undermining the technological advancements Kenya has achieved.
Historical Comparisons: Lessons from Zimbabwe and Nigeria
Historical parallels with other African nations highlight the risks Kenya faces. Zimbabwe’s hyperinflation in the late 2000s led to an economic collapse from which the country has yet to fully recover. Similarly, Nigeria’s economic struggles, compounded by high inflation and unemployment, have stifled the growth of its tech sector despite its potential. Libya, too, once had promising economic buoyancy but is struggling to recover shortly after its civil war. Kenya risks following these paths if it proceeds with the proposed VAT increase without considering its broader impact.
Alternative Revenue Measures
Given the potential negative consequences of the proposed VAT increase, it is crucial to explore alternative revenue-generating measures. Broadening the tax base to include more sectors of the economy, improving tax compliance, and cutting unnecessary expenditures are viable options. Additionally, encouraging foreign investment through favorable policies and improving the ease of doing business in Kenya could stimulate economic growth and increase revenue without imposing a heavy tax burden on existing businesses.
Conclusion
While the Kenyan government aims to increase revenue for debt repayment, the proposed 16% VAT increase could have severe consequences. These include higher business costs, potential company exits, increased unemployment and poverty, and social instability. Drawing parallels to Zimbabwe, Nigeria, and Libya highlights the risks of this fiscal strategy.Kenya’s progress in its technological ecosystem requires careful economic policy consideration. By exploring alternative revenue measures and fostering a stable business environment, Kenya can maintain its growth trajectory and avoid pitfalls that have affected other nations.
Disclaimer: This editorial is based on researched facts and draws parallels between Kenya’s current situation and other nations’ experiences. No interviews were conducted, and the views expressed do not represent personal opinions.
