Lenders Push Kenya to End Covid-19 Tax Relief

  • File image of President Uhuru Kenyatta
    File image of President Uhuru Kenyatta
  • The government is under pressure from lenders to end the Covid-19 tax relief packages to Kenyans as soon as possible.

    The multilateral lenders are hesitant to offer Kenya more loans before the country cuts wasteful spending and streamlines operation costs.

    The tax reliefs, which had been extended to January 2021, were introduced in April 2020 to cushion Kenyans from the effects of the Covid-19 pandemic. 

    President Uhuru Kenyatta directed Treasury to extend the reduction of value-added tax (VAT) to January 2021.

    Treasury CS Ukur Yatani (right) poses for a photo at Treasury Headquarters, Nairobi on Thursday, June 11, 2020, ahead of Budget 2020/21 presentation

    Other tax relief measures, including a reduction of Pay As You Earn (PAYE) to 25% for those who earn more than Ksh 24,000 and 100% tax waiver for those taking home less than Ksh 24,000, will end in January 2021. 

    Turnover tax, which had been reduced from 3% to 1% will run until the end of December 2020.

    "The question that this development begs is the following: If positive disruptions and innovations have mushroomed during Covid-19, how do we support them as part of our resilience-building strategy?" Kenyatta posed before extending the relief packages. 

    Government officials are contemplating reversing these relief measures as the National Treasury will be forced to borrow more if it does not cut spending. 

    The government is seeking Ksh 400 billion from the International Monetary Fund (IMF), with the funds expected to offset loans to foreign creditors. 

    IMF had already flagged Kenya at risk of defaulting its loan commitments after the economy was affected by the Covid-19 pandemic. 

    The government was also advised to take up debt relief measures to free up liquidity, a process CS Yattani confirmed the government was keen on considering. 

    File image of Kenyans walking in a street in Nairobi