Coronavirus: Hits and misses in Government’s relief measures
On Wednesday, President Uhuru Kenyatta announced the government’s first round of stimulus to prevent the economy from imploding into a full-blown crisis following the COVID-19 outbreak.
Among the top measures made in orders to the National Treasury included a 100 per cent waiver on taxes to individuals earning less than Ksh.24, 000 and the trimming on turnover taxes on small and medium enterprises (SMEs) to one percent from three per cent.
“I recognize the anxiety that this pandemic has caused millions of Kenyan families; fearful of what the future may hold for them and their children. And the possibility of job losses and loss of income weighing heavily on their minds,” President Uhuru Kenyatta said in an address to the state Wednesday.
Industry stakeholders have, however, revealed the proposed measures largely fall short of impacting ordinary Mwananchi as the top measures centre on formal sector workers.
“The measures were mainly targeted at formal workers and a certain class of businesses. We had for instance seen businesses such as hotels and entertainment joints close down. Employees and owners in such establishment may not benefit on measures such as relief on turnover and pay as you earn (PAYE),” said Inter Region Economic Network (IREN) Director James Shikwati.
Viffa Consult Managing Director Victor Agolla argues the majority of SMEs will barely find relief from the stimulus package due to their informal nature.
“One thing that we must realise is that MSMEs in Kenya are quite unique hence even though commendable; the blanket stimulus package may not be felt by 79 per cent of unlicensed SMEs who according to the Kenya National Bureau of Statistics are 5.85 million compared to a total MSME population of 7.41 million,” he said.
“These unlicensed SMEs most likely don’t have financial systems to enable them be tax compliant hence the tax incentives of reduced turnover tax, PAYE and VAT may not have a significant impact to their trade.”
KPMG Tax & Regulatory Services Partner Caxton Kinuthia argues the targeting of the average Kenyan through blanket stimulus is usually a challenging task as he appeals for the creation of a special fund to alleviate the economic plight of vulnerable members of society.
“For instance a relief on PAYE for earners below gross salaries of Ksh.24,000 translates to less than Ksh.1,700 in gains per person. The average Kenyan was already struggling before the coronavirus crisis struck,” he said.
IREN’s Director James Shikwati finds positives in the avoidance of a total shutdown backing the plan to provide relief to Kenyans who would otherwise be denied the chance to earn a daily wage.
“By not seeking out a lockdown, this gives the opportunity to every Kenyan to seek out a living during the day. Were it to be a total lockdown, the majority of Kenyans would have struggled to put food on the table,” he added.
To follow up the first stimulus, economist Tony Watima recommends the implementation of a Marshal Plan to address economic sectors across the board to prevent a meltdown.
“Quite a number of businesses are shutting down, we need to see mitigating interventions. We might not prevent all businesses from going down but we can control the problem. If we don’t do that, we can expect a meltdown,” he said.
Measures pronounced on Wednesday are expected to kick in from April 1 with the National Treasury already gazetting the reduction of value added tax (VAT) to 14 per cent from 16 per cent on Thursday.
Other interventions are expected to filter in from an expected legislative process in the National Assembly.