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Pain of new taxes being felt across East Africa




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Regional governments have moved to squeeze every penny possible from their citizens by introducing new taxes on consumer goods and other essential commodities to fund their ballooning budgets and to service development loans.

From kerosene to toothpaste, toilet paper, toothbrushes, sweets, chocolates, books, mattresses and even Internet access, governments are imposing taxes, measures that are hurting the poor further.

This is coming at a time when the region’s governments are finding it increasingly hard to secure external funding to reduce their budget deficits. The governments have thus resorted to painful taxation measures, even as they institute austerity in their spending, in the face of missed revenue targets.

In June, as finance ministers presented their annual budgets, East Africa’s three top three economies announced plans to borrow more than $12 billion to finance their budget deficits, even as their public debts rose amid concerns over sustainability.

Kenya had the highest borrowing plans of $5.58 billion, followed by Tanzania at $4.6 billion and Uganda at $2.4 billion, with a huge chunk of this being sourced from external financiers. However, this seems to have slowed down, as the reality that they needed to cut down their spending sank in.

Now, they are raiding their citizens’ pockets to plug the expected shortfall and deliver on their promises.

Kenya is already finding it difficult to fund the operations of its expanded government, amid falling revenue collections, rising public debt and an underperforming economy.

On Tuesday, Kenyan legislators voted to reduce this year’s $30 billion budget by $376 million after it emerged that the country will not collect enough revenues in an economy that grew only 4.9 per cent in 2017, the slowest in five years. This cut, however, fell short of the $546 million that National Treasury Cabinet Secretary Henry Rotich had recommended.

On Thursday, legislators voted to introduce 8 per cent VAT on all oil products, and President Uhuru Kenyatta signed it into law a few hours later.

The country’s total expenditure has been rising over the past 10 years, from 22.3 per cent of GDP in the 2008/2009 fiscal year to 27.5 per cent of GDP in 2016/2017.

The situation worsened after it adopted a devolved system of government in the 2013/2014 fiscal year. The devolved system ushered in county governments and increased the number of Members of Parliament to 418 from 222, among other constitutional office holders.

It is argued that with Kenya’s current revenue levels, and the increased spending pressures as a result of the devolved system of government, Treasury is financially constrained and has to survive on borrowing.

Parliament has in the meantime voted to cut spending on infrastructure projects such as roads to ensure the government survives this rough patch.


An attempt by the government to curb revenue leakages by abolishing and merging poorly performing state corporations was met with resistance, largely due to institutional wrangles, lack of political will and the National Treasury’s unwillingness to take the lead in pushing through the reforms.

Kenya’s 2018/2019 budget is 29 per cent more than the revised budget of the 2017/18 fiscal year but a huge chunk of it — estimated at 25 per cent — is going towards repayments of the national debt, which is currently estimated at Ksh5 trillion ($50 billion), while nearly 50 per cent of this budget is expected to go towards salaries for public officers.

According to economists at the Nairobi-based think tank Institute of Economic Affairs, Kenya’s overall revenue mobilisation in relation to target has continued to underperform largely due to a weak economy.

They said the government should enforce austerity measures to stem the increasing expenditure bill especially the rise in recurrent expenditure, including cutting non-core expenditure items such as travel and conferences.

“The government should be wary of a subdued economy. Revenue performance is strongly linked to economic growth and despite some positive signs of economic rebound there are a number of policy concerns that may affect economic growth and hence undermine revenue collection,” says the think-tank.

It is feared that the subdued credit to the private sector, especially to the small- and medium-enterprises, which is blamed on interest rate capping, could stifle economic growth this year.

Kenya’s economic growth also remains unpredictable and may further be dampened by external factors such as rising international oil prices.

Mr Rotich introduced new taxes in an effort to fund his $30 billion budget for the 2018/2019 fiscal year, as the country faced budget financing challenges, compounded by last week’s expiry of an International Monetary Fund’s $1.5 billion stand-by loan facility for balance of payments support.

The fiscal deficit reduction targets were set by the IMF when it granted a precautionary credit deal two years ago.

Treasury had budgeted for $347.74 million to be collected through a 16 per cent value added tax on all oil products, but President Uhuru Kenyatta recommended that it be halved to 8 per cent to allow Treasury to collect $175 million.

Other new taxes include an increase in the price of kerosene by $0.18 per litre to stop adulteration; excise duty of $0.2 per kilogramme of confectionery, and a 20 per cent levy on the charges banks levy on customers for money transfers.

In Uganda, the taxation regime for select food and non-food items of between 25 per cent and 60 per cent in this year’s budget rattled taxpayers. But it was the introduction of the social media tax in July, through which the Kampala administration aims to raise $103 million annually, that sent the clearest indication that the government was desperate for money.

“We are so far pleased with the impact of the tax measures introduced in the 2018/19 financial year budget. The increase in taxes is working. We are absolutely okay with what we did. After missing its tax collection targets by $160.2 million for the financial year 2017/18, the Ugandan Revenue Authority is now back to doing well,” Uganda’s Finance Permanent Secretary Keith Muhakanizi said.

Kampala has also pushed for the introduction of a 30 per cent income tax on takeover deals by private and listed companies, targeting major acquisition deals.

This move comes after years of generous income tax relief that helped investors pull off big ticket acquisitions on the stock exchange without suffering the burden of huge income tax bills.

“It is also obvious that the government is desperate to collect more taxes to finance its budget. Some investors will be affected by this tax measure but those who are very aggressive on investment exit plans may not be affected,” Plaxeda Namirimu, a tax director at PwC Uganda, told The EastAfrican in an earlier interview.

Tanzania, which is also staring at a budget shortfall of 5.3 per cent of GDP, introduced new taxation measures as it sought to fund its $14.21 billion budget.

Finance Minister Dr Philip Mpango did not change the fixed tariffs on locally produced non-petroleum excisable products including alcohol, soft drinks and tobacco but increased the excise duty rates of imported non-petroleum products by 5 per cent.

Dar es Salaam also replaced the Paper Tax Stamp from September this year with the Electronic Tax Stamp, which it said will enable the government to obtain production data from manufacturers in real time.

Dr Mpango is also pushing to widen the tax base by formalisation of the informal sector.



Sordid tale of the bank ‘that would bribe God’




Bank of Credit and Commerce International. August 1991. [File, Standard]

“This bank would bribe God.” These words of a former employee of the disgraced Bank of Credit and Commerce International (BCCI) sum up one of the most rotten global financial institutions.
BCCI pitched itself as a top bank for the Third World, but its spectacular collapse would reveal a web of transnational corruption and a playground for dictators, drug lords and terrorists.
It was one of the largest banks cutting across 69 countries and its aftermath would cause despair to innocent depositors, including Kenyans.
BCCI, which had $20 billion (Sh2.1 trillion in today’s exchange rate) assets globally, was revealed to have lost more than its entire capital.
The bank was founded in 1972 by the crafty Pakistani banker Agha Hasan Abedi.
He was loved in his homeland for his charitable acts but would go on to break every rule known to God and man.
In 1991, the Bank of England (BoE) froze its assets, citing large-scale fraud running for several years. This would see the bank cease operations in multiple countries. The Luxembourg-based BCCI was 77 per cent owned by the Gulf Emirate of Abu Dhabi.  
BoE investigations had unearthed laundering of drugs money, terrorism financing and the bank boasted of having high-profile customers such as Panama’s former strongman Manual Noriega as customers.
The Standard, quoting “highly placed” sources reported that Abu Dhabi ruler Sheikh Zayed Sultan would act as guarantor to protect the savings of Kenyan depositors.
The bank had five branches countrywide and panic had gripped depositors on the state of their money.
Central Bank of Kenya (CBK) would then move to appoint a manager to oversee the operations of the BCCI operations in Kenya.
It sent statements assuring depositors that their money was safe.
The Standard reported that the Sheikh would be approaching the Kenyan and other regional subsidiaries of the bank to urge them to maintain operations and assure them of his personal support.
It was said that contact between CBK and Abu Dhabi was “likely.”
This came as the British Ambassador to the UAE Graham Burton implored the gulf state to help compensate Britons, and the Indian government also took similar steps.
The collapse of BCCI was, however, not expect to badly hit the Kenyan banking system. This was during the sleazy 1990s when Kenya’s banking system was badly tested. It was the era of high graft and “political banks,” where the institutions fraudulently lent to firms belonging or connected to politicians, who were sometimes also shareholders.
And even though the impact was expected to be minimal, it was projected that a significant number of depositors would transfer funds from Asian and Arab banks to other local institutions.
“Confidence in Arab banking has taken a serious knock,” the “highly placed” source told The Standard.
BCCI didn’t go down without a fight. It accused the British government of a conspiracy to bring down the Pakistani-run bank.  The Sheikh was said to be furious and would later engage in a protracted legal battle with the British.
“It looks to us like a Western plot to eliminate a successful Muslim-run Third World Bank. We know that it often acted unethically. But that is no excuse for putting it out of business, especially as the Sultan of Abu Dhabi had agreed to a restructuring plan,” said a spokesperson for British Asians.
A CBK statement signed by then-Deputy Governor Wanjohi Murithi said it was keenly monitoring affairs of the mother bank and would go to lengths to protect Kenyan depositors.
“In this respect, the CBK has sought and obtained the assurance of the branch’s management that the interests of depositors are not put at risk by the difficulties facing the parent company and that the bank will meet any withdrawal instructions by depositors in the normal course of business,” said Mr Murithi.
CBK added that it had maintained surveillance of the local branch and was satisfied with its solvency and liquidity.
This was meant to stop Kenyans from making panic withdrawals.
For instance, armed policemen would be deployed at the bank’s Nairobi branch on Koinange Street after the bank had announced it would shut its Kenyan operations.
In Britain, thousands of businesses owned by British Asians were on the verge of financial ruin following the closure of BCCI.
Their firms held almost half of the 120,000 bank accounts registered with BCCI in Britain. 
The African Development Bank was also not spared from this mess, with the bulk of its funds deposited and BCCI and stood to lose every coin.
Criminal culture
In Britain, local authorities from Scotland to the Channel Islands are said to have lost over £100 million (Sh15.2 billion in today’s exchange rate).
The biggest puzzle remained how BCCI was allowed by BoE and other monetary regulation authorities globally to reach such levels of fraudulence.
This was despite the bank being under tight watch owing to the conviction of some of its executives on narcotics laundering charges in the US.
Coast politician, the late Shariff Nassir, would claim that five primary schools in Mombasa lost nearly Sh1 million and appealed to then Education Minister George Saitoti to help recover the savings. Then BoE Governor Robin Leigh-Pemberton condemned it as so deeply immersed in fraud that rescue or recovery – at least in Britain – was out of the question.
“The culture of the bank is criminal,” he said. The bank was revealed to have targeted the Third World and had created several “institutional devices” to promote its operations in developing countries.
These included the Third World Foundation for Social and Economic Studies, a British-registered charity.
“It allowed it to cultivate high-level contacts among international statesmen,” reported The Observer, a British newspaper.
BCCI also arranged an annual Third World lecture and a Third World prize endowment fund of about $10 million (Sh1 billion in today’s exchange rate).
Winners of the annual prize had included Nelson Mandela (1985), sir Bob Geldof (1986) and Archbishop Desmond Tutu (1989).
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Tracking and monitoring motor vehicles is not new to Kenyans. Competition to install affordable tracking devices is fierce but essential for fleet managers who receive reports online and track vehicles from the comfort of their desk.

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Agricultural Development Corporation Chief Accountant Gerald Karuga on the Spot Over Fraud –




Gerald Karuga, the acting chief accountant at the Agricultural Development Corporation (ADC), is on the spot over fraud in land dealings.

ADC was established in 1965 through an Act of Parliament Cap 346 to facilitate the land transfer programme from European settlers to locals after Kenya gained independence.

Karuga is under fire for allegedly aiding a former powerful permanent secretary in the KANU era Benjamin Kipkulei to deprive ADC beneficiaries of their land in Naivasha.

Kahawa Tungu understands that the aggrieved parties continue to protest the injustice and are now asking the Ethics and Anti-corruption Commission (EACC) and the Directorate of Criminal Investigations (DCI) to probe Karuga.

A source who spoke to Weekly Citizen publication revealed that Managing Director Mohammed Dulle is also involved in the mess at ADC.

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Dulle is accused of sidelining a section of staffers in the parastatal.

The sources at ADC intimated that Karuga has been placed strategically at ADC to safeguard interests of many people who acquired the corporations’ land as “donations” from former President Daniel Arap Moi.

Despite working at ADC for many years Karuga has never been transferred, a trend that has raised eyebrows.

“Karuga has worked here for more than 30 years and unlike other senior officers in other parastatals who are transferred after promotion or moved to different ministries, for him, he has stuck here for all these years and we highly suspect that he is aiding people who were dished out with big chunks of land belonging to the corporation in different parts of the country,” said the source.

In the case of Karuga safeguarding Kipkulei’s interests, workers at the parastatals and the victims who claim to have lost their land in Naivasha revealed that during the Moi regime some senior officials used dubious means to register people as beneficiaries of land without their knowledge and later on colluded with rogue land officials at the Ministry of Lands to acquire title deeds in their names instead of those of the benefactors.

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“We have information that Karuga has benefitted much from Kipkulei through helping him and this can be proved by the fact that since the matter of the Naivasha land began, he has been seen changing and buying high-end vehicles that many people of his rank in government can’t afford to buy or maintain,” the source added.

“He is even building a big apartment for rent in Ruiru town.”

The wealthy officer is valued at over Sh1.5 billion in prime properties and real estate.

Last month, more than 100 squatters caused scenes in Naivasha after raiding a private firm owned by Kipkulei.

The squatters, who claimed to have lived on the land for more than 40 years, were protesting take over of the land by a private developer who had allegedly bought the land from the former PS.

They pulled down a three-kilometre fence that the private developed had erected.

The squatters claimed that the former PS had not informed them that he had sold the land and that the developer was spraying harmful chemicals on the grass affecting their livestock and homes built on a section of the land.

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Naivasha Deputy County Commissioner Kisilu Mutua later issued a statement warning the squatters against encroaching on Kipkuleir’s land.

“They are illegally invading private land. We shall not allow the rule of the jungle to take root,” warned Mutua.

Meanwhile, a parliamentary committee recently demanded to know identities of 10 faceless people who grabbed 30,350 acres of land belonging to the parastatal, exposing the rot at the corporation.

ADC Chairman Nick Salat, who doubles up as the KANU party Secretary-General, denied knowledge of the individuals and has asked DCI to probe the matter.

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William Ruto eyes Raila Odinga Nyanza backyard




Deputy President William Ruto will next month take his ‘hustler nation’ campaigns to his main rival, ODM leader Raila Odinga’s Nyanza backyard, in an escalation of the 2022 General Election competition.

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