The World Bank has warned that the proposed tax changes in the Finance Bill 2023 will have a negative impact on households’ ability to make purchases over the medium term.
It also portends harsher times ahead for businesses struggling with decreased demand as a result of the high cost of goods, as this is likely to exacerbate the current inflationary pressures brought on by an increase in the costs of essential commodities, particularly food, and fuel.
The Washington-based organization claimed in recent research that the current tax measures, which include hiking the standard value-added tax (VAT) on fuel from eight to sixteen percent, will slow development in the near term.
“Private consumption is expected to remain on a robust growth path, although it will be dampened in the near term by…ongoing tax reforms to boost revenue and sustain fiscal consolidation,” said the World Bank in its 27th Kenya Economic Update (KEU).
The report, which is produced twice a year, assesses recent economic and social developments and prospects in the country.
The economy is projected to grow faster at five percent this year, compared to 4.8 percent last year, according to the forecast.
This growth, however, is likely to be dampened by the proposed tax measures, which will eat into the disposable income of most Kenyans, especially those who are employed.
The government has introduced a new tax regime aimed at helping the country reduce its borrowing, with Kenya’s risk of debt distress rising to high from moderate.
“The fiscal consolidation that the government is planning is very crucial. It is very important for Kenya to generate the surplus that it is planning,” said Aghassi Mkrtchyan, a senior economist at the World Bank.