Finance Bill bad for households

What Kenya needs is a serious plan to kick-start the economy. FILE PHOTO | FOTOSEARCH

It does not surprise that Anglican bishops have joined worker unions and opposition politicians in rejecting the tax increases proposed in the Finance Bill.

What Kenya needs is a serious plan to kick-start the economy. You don’t get the feeling that serious thought has been given to the likely implication of these tax proposals to the living standards of the people and the productivity of the private sector.

Our planners engage in intellectual dishonesty when they approach tax policy on the make-believe narrative that Kenya’s economy is performing very well and has been growing at an average of five percent of gross domestic product (GDP) in the last 10 years.

As we learnt from the famous statement by Benjamin Disraeli, “All you can get from official statistics is lies, damn lies and statistics”.

I say so because if things were that rosy, how would you explain the fact that the profitability of most of our leading companies remains depressed?

If it were true that the economy was growing at such a satisfactory pace, why isn’t that growth reflected in tax to GDP?

How do you explain the preponderance of the companies issuing profit warnings and the fact of widespread and crippling distress in more than half of our commercial banking sector?

The fact of the matter is that most of what we have are zombie banks only surviving because of regulatory forbearance by the Central Bank of Kenya (CBK).

If the Central Bank were to insist today that all the banks must strictly abide by the guidelines on liquidity and asset quality, a good number of the living dead would immediately fall.

Yet another indicator of an underlying weak economy is a decline in investment by businesses. These days, it is rare to hear stories about profitable businesses coming out to announce major expansion projects.

We no longer hear about frequent corporate debt issues by thriving companies reaching out to our capital markets to raise long-term money to fund new investments and expansion.

In the agricultural and manufacturing sectors, all you see is anaemic growth. In the energy sector, successive regimes have been touting an exponential growth in the number of new electricity connections.

Yet when you look at the statistics on performance from Kenya Power’s audited accounts, the picture you get is that despite the growth in new electricity connections, consumption by large and industrial consumers has stagnated.

Why am I talking about sluggish and jobless growth when what we see in official statistics are rosy numbers projecting positive growth?

My point is that even though the trends of anaemic growth may not be apparent from official statistics, the evidence and symptoms have been out there for everybody to see — widespread retrenchment of staff by companies, a shrinking number of profitable companies in the economy, and sluggish take-up of credit by businesses.

How can we believe official statistics when all we see on the ground is an upsurge in the number of companies issuing profit warnings, proclivity by multinational companies to ship out capital in dividends instead of injecting it into expansion, and preponderance of zombie and large manufacturing companies that do not pay taxes and are only able to survive by piling up cases at the Kenya Revenue Authority’s tax tribunal, and by circumventing payment of power bills?

How do you explain the phenomenon of bankrupt public universities and a banking system that devotes a hugely disproportionate share of its deposits to lending to the government?

The point, therefore, is the following: the level of taxation proposed in this year’s Finance Bill will be counterproductive and must be postponed until the economy has reached a stage where we have started seeing a vigorous rise in agricultural output, substantial investment in new plant and machinery, a new explosion in corporate profitability, and a major spike in credit to households and businesses.

What President William Ruto’s administration needs right now is a plan teeming with ambition capable of turbocharging the economy and snapping it out of stagnation.

Opportunities for starting profitable businesses are dwindling in this economy.

Ask any small business person you meet — a taxi driver, a newspaper vendor, a second-hand clothes dealer, a second-hand car importer or an operator of an M-Pesa shop about how business is doing and the standard refrain will be hakuna biashara siku hizi (there is no business these days).

The Finance Bill is an attempt by the government to squeeze living standards on the population in a desperate bid to balance its finances.