In 1696, King William III introduced the window tax policy in England, because windows were easy to count and levy. Homes with up to ten windows were required to pay two shillings. The rationale of this tax policy was that richer people were likely to have bigger houses with more windows and therefore would pay more.
Since avoiding paying tax is a human behavioural disposition, the reaction to the new tax policy was that people decided to block windows in their homes in order to pay less taxes.
So, when Parliament last week passed into law the new tax levies recommended by the President and intended to increase revenue collection – mainly Sh35 billion expected from eight per cent VAT on petroleum products, Sh9 billion from the new anti-adulteration levy on kerosene at the rate of Sh18 per litre Sh7.6 billion from excise duty charged money transfer services, telephone and data services – the contrary will most likely happen.
If we are to look at Kenya’s share of revenue collection to GDP in the last four fiscal years, it paints a turbulent picture in our revenue collection efforts, from 2012/2013 the share stood at 17.3 per cent, then went up in 2013/14 recording 18.1 per cent, in 2014/2015 it was 18.7 per cent to 17.2 per cent in 2016/17 and now stands at 19.6 per cent in 2017/2018.
What this turbulence means is that, with the current tax base we are operating within our optimal revenue collection point and there is no room to collect more revenue without harming overall economic growth
This is already evident because in the last four years private consumption (which accounts for some 75 per cent of GDP) has been declining by about five percentage points, this is according to the 2018 World Bank Economic Update report.
Second, what seem to have been forget at Treasury who proposed the new tax levies and Parliament which ratified is that the tax on fuel is consumption tax meaning the entire increase will be passed to the consumers.
A first-year student of economics can confirm that the effect of this kind of tax is that it will reduce consumption of the product.
For example: Kerosene is majorly used by household consumer because it cheaper, increasing it by an exorbitant Sh18 per litre makes unaffordable and so the working poor consumers will likely go back to biomass.
So, it is shocking when Treasury boldly projects a mirage that consumption of Kerosene will still be sustained and Ksh9 billion additional revenue will be collected.
Third, the other ripple-effect simulation missed in the VAT levy on petroleum product and anti-adulteration levy is their upward effect on inflation.To begin with, Kenya is a net oil importer therefore the current rise in international oil prices will be contributing to a pick-up in inflation.
So when you factor in the entire increase of the eight per cent VAT on fuel and Sh18 per litre on Kerosene to the consumer whose income has not increased means that real disposable income – income for one to do his/her general shopping every month – has actually shrunk the moment the President assented the bill into law.
What this means in the medium term is that Kenya may enjoy high economic growth as projected by CBK and treasury of more than five per cent but will not be inclusive growth that translates to overall poverty reduction.
Using recent data released by KNBS, Kenya’s official poverty statistics is that 35.6 per cent of Kenyans live below the international poverty line, meaning one out of every three Kenyans lives below the poverty line.
In the last ten years, around 10 per cent of Kenyans have actually moved up from living below the poverty line to floating middle-class.
Therefore, if government continues taking more from their income in form of taxes and levies when their disposable income has not increased, a number of Kenyans will be condemned back to living below the poverty line.
World Bank pushes G-20 to extend debt relief to 2021
World Bank Group President David Malpass has urged the Group of 20 rich countries to extend the time frame of the Debt Service Suspension Initiative(DSSI) through the end of 2021, calling it one of the key factors in strengthening global recovery.
“I urge you to extend the time frame of the DSSI through the end of 2021 and commit to giving the initiative as broad a scope as possible,” said Malpass.
He made these remarks at last week’s virtual G20 Finance Ministers and Central Bank Governors Meeting.
The World Bank Chief said the COVID-19 pandemic has triggered the deepest global recession in decades and what may turn out to be one of the most unequal in terms of impact.
People in developing countries are particularly hard hit by capital outflows, declines in remittances, the collapse of informal labor markets, and social safety nets that are much less robust than in the advanced economies.
For the poorest countries, poverty is rising rapidly, median incomes are falling and growth is deeply negative.
Debt burdens, already unsustainable for many countries, are rising to crisis levels.
“The situation in developing countries is increasingly desperate. Time is short. We need to take action quickly on debt suspension, debt reduction, debt resolution mechanisms and debt transparency,” said Malpass.
Kenya’s Central Bank Drafts New Laws to Regulate Non-Bank Digital Loans
The Central Bank of Kenya (CBK) will regulate interest rates charged on mobile loans by digital lending platforms if amendments on the Central bank of Kenya Act pass to law. The amendments will require digital lenders to seek approval from CBK before launching new products or changing interest rates on loans among other charges, just like commercial banks.
“The principal objective of this bill is to amend the Central bank of Kenya Act to regulate the conduct of providers of digital financial products and services,” reads a notice on the bill. “CBK will have an obligation of ensuring that there is fair and non-discriminatory marketplace access to credit.”
According to Business Daily, the legislation will also enable the Central Bank to monitor non-performing loans, capping the limit at not twice the amount of the defaulted loan while protecting consumers from predatory lending by digital loan platforms.
Tighter Reins on Platforms for Mobile Loans
The legislation will boost efforts to protect customers, building upon a previous gazette notice that blocked lenders from blacklisting non-performing loans below Ksh 1000. The CBK also withdrew submissions of unregulated mobile loan platforms into Credit Reference Bureau. The withdrawal came after complaints of misuse over data in the Credit Information Sharing (CIS) System available for lenders.
Last year, Kenya had over 49 platforms providing mobile loans, taking advantage of regulation gaps to charge obscene rates as high as 150% a year. While most platforms allow borrowers to prepay within a month, creditors still pay the full amount plus interest.
Amendments in the CBK Act will help shield consumers from high-interest rates as well as offer transparency on terms of digital loans.
Scope Markets Kenya customers to have instant access to global financial markets
NAIROBI, Kenya, Jul 20 – Clients trading through the Scope Markets Kenya trading platform will get instant access to global financial markets and wider investment options.
This follows the launch of a new Scope Markets app, available on both the Google PlayStore and IOS Apple Store.
The Scope Markets app offers clients over 500 investment opportunities across global financial markets.
The Scope Markets app has a brand new user interface that is very user friendly, following feedback from customers.
The application offers real-time quotes; newsfeeds; research facilities, and a chat feature which enables a customer to make direct contact with the Customer Service Team during trading days (Monday to Friday).
The platform also offers an enhanced client interface including catering for those who trade at night.
The client will get instant access to several asset classes in the global financial markets including; Single Stocks CFDs (US, UK, EU) such as Facebook, Amazon, Apple, Netflix and Google, BP, Carrefour; Indices (Nasdaq, FTSE UK), Metals (Gold, Silver); Currencies (60+ Pairs), Commodities (Oil, Natural Gas).
The launch is part of Scope Markets Kenya strategy of enriching the customer experience while offering clients access to global trading opportunities.
Scope Markets Kenya CEO, Kevin Ng’ang’a observed, “the Sope Markets app is very easy to use especially when executing trades. Customers are at the heart of everything we do. We designed the Scope Markets app with the customer experience in mind as we seek to respond to feedback from our customers.”
He added that enhancing the client experience builds upon the robust trading platform, Meta Trader 5, unveiled in 2019, enabling Scope Markets Kenya to broaden the asset classes available on the trading platform.