Turmoil doesn’t seem to leave Kenya from its tightening grip as President William Ruto continues to face anti-government protests which he has termed as ‘treasonous’. The protests were triggered due to the passing of a legislation which introduced higher taxes in adherence to the economic reforms suggested by the International Monetary Fund (IMF).
However, on June 26, in the face of massive protests which have claimed the lives of 31 Kenyans and left another 361 injured so far, the Ruto government withdrew the Kenya Finance Bill 2024.
Experts argue that the withdrawal of the controversial Bill is likely to impact the country’s socio-economic development significantly.
Many environmentalists also believe that the move will possibly impact waste management and climate change mitigation efforts, which were to be partly addressed by a rigorous environmental tax that had been included in the Bill.
Kenya’s economic woes
Like many other nations across Africa, Kenya is struggling to access crucial climate finance, climate-related capacity-building initiatives and sufficient international cooperation to adequately respond to the escalating climate crisis. The complexities of international finance mechanisms, stringent application processes, and insufficient institutional capacity often hinder Kenya and other poor nations’ efforts to access the Green Climate Fund (GCF), the largest funding mechanism of the United Nations Framework Convention on Climate Change (UNFCCC).
Kenya, for instance, is grappling with recurrent droughts and floods, erratic weather patterns, and rising temperatures, all of which threaten its agricultural sector and overall economy.
According to a Ministry of Transport report,the country is currently in need of Ksh (Kenyan Shilling) 37.3 billion to restore and repair roads and bridges swept away by recent flash floods.
Besides, apart from more than 400 deaths and missing persons, the estimates of the loss occasioned by the floods in other key sectors like agriculture are unavailable.
In the 2024-25 Budget, which the dropped Finance Bill would have informed, the Kenyan government aimed to generate additional revenue of Ksh 302 billion through these taxes to address budget deficits and reduce state borrowing.
Kenya’s public debt — which includes funds borrowed annually for climate adaptation and mitigation — is currently at 68 per cent of its GDP and exceeds the World Bank and IMF’s recommended threshold of 55 per cent. This has kept away global lenders who are afraid of bad debts or default.
Due to these complications and acute liquidity challenges, Kenya sought IMF support to help itself meet revenue targets, which include the necessary funds to implement effective climate adaptation and mitigation strategies.
The IMF’s bailout programme included comprehensive economic reforms, aiming for revenue collection to reach 25 per cent of GDP to alleviate the country’s debt burden.
Contentious environmental tax
The Kenyan government proposed new taxes, targeting manufacturers and importers of 18 select essential items despite public opposition to meet these targets.
According to Kuria Kimani, the chairperson of the Kenya National Assembly Finance and Planning Committee,included in the dropped amendments was a proposed environmental tax through which the Kenyan government was targeting to raise Ksh 10 billion in revenue through the ‘Eco Levy’.
“The revenue we targeted from the Eco Levy for locally manufactured and imported products was Sh10 billion. Abandoning the Finance Bill will have a financial implication, leaving a huge revenue gap that must be filled,” Kimani said.
To foster eco-friendly practices and promote its green agenda, the Kenyan government proposed a stringent Eco Levy, which, unlike previous interventions, aimed to curb micro-pollution and waste management at the office and household levels.
Besides targeting the usage and disposal of everyday office and household plastic items, the levy also sought to address e-waste pollution.
It, for instance, recommended that those who intend to import plastics into the Kenyan market pay an extra fee of Ksh 150 per kilo.
The stringent Eco Levy was meant to enhance existing weaker and less effective waste and pollution control mechanisms, such as the Extended Producer Responsibility (EPR) regulations that Kenya adopted two years ago, according to environmentalists. The EPR is a comprehensive global framework designed to hold manufacturers accountable for the entire lifecycle of their plastic and electronic products.
The current Kenya Producer Responsibility Organizations (KEPROs) collect EPR fees—a measly Ksh 10 on average per kilogram of plastic imported—from their members as per Kenya’s Sustainable Waste Management Act of 2022. Under the EPR regulations, local manufacturers and importers must establish post-consumer collection schemes, join compliance schemes, and design products that facilitate reuse, recycling, and recovery.
Environmentalists and related national agencies, such as the National Environment Management Authority (NEMA), put up a case for the stringent Eco Levy, saying it was necessary because the current mechanisms aimed at pricing plastic pollution, like EPR, are too lenient. Those opposed to the environmental tax, such as the Kenya Association of Manufacturers (KAM), voiced objection, saying that any fees/levies/duties imposed by the Government of Kenya only affect Kenyan products and companies.
Yet the country operates within the competitive East Africa Community (EAC) Common Market, the aggressive Common Market for Eastern and Southern Africa (COMESA) and now the fierce African Continental Free Trade Area (AfCFTA). Due to this, KAM and other opponents were concerned that Kenyan companies and products, including those aimed at providing clean energy solutions, would become uncompetitive, and the local market would be flooded with products from other EAC and COMESA countries.
Impending climate implications of Kenya-IMF fallout
Together with other dropped taxes, these strict waste management measures were crucial for fiscal consolidation and obtaining further IMF funding, underscoring the country’s delicate economic balancing act.
While acknowledging the significance of what had been proposed as new taxes, economists and other experts agree that the withdrawal of the Finance Bill will negatively impact the country.
Betterman Musasia, an environmentalist, believes that dropping the Finance Bill was a lost opportunity. According to the sustainable public sanitation advocate and pollution control specialist, the fees collected by these KEPROs are too little to address the country’s severe material pollution problems.
“The Kenya Producer Responsibility Organization (KEPRO) collects between 0.5 and 13 Kenya Shillings per kilogram of plastic from producers, depending on the type of material. On the lower end, this is less than 1 per cent of what the proposed Eco Levy suggested,” said Musasia.
“It is unclear how KEPRO determined these EPR fees and whether the government played any role in this process. However, one thing is clear: the producers have grossly undervalued their responsibilities in pollution if the proposals in the Eco Levy for plastics were anything to go by,” he added.
Meanwhile, XN Iraki, an economist, stated that dropping the Finance Bill poses the potential for increased borrowing, policy reversals, and a host of austerity measures, which will impact socio-economic development.“We now expect adjustments. I mean, from where will the government get the extra taxes? We expect adjustments in development budgets and stalling of some key projects and initiatives,” said Iraki, adding that the government must also explore alternative revenue sources, fight corruption and curb wastage.
President Ruto’s options
Speaking to journalists, President William Ruto remarked that Kenya will have to borrow more to keep the government running, following the rejection of a hugely unpopular Finance Bill.
“I have been working hard to pull Kenya out of a debt trap through the Finance Bill. Dropping the Finance Bill will have huge consequences. The extra taxes were supposed to raise about Ksh 350 billion, while about Ksh600bn would be borrowed. We now will have to borrow approximately Ksh 1 trillion ($7.6bn) to run the government,” said President Ruto.
What does this impending fallout with the IMF mean? The general consensus from experts is that this doesn’t sit well amid the growing climate finance imperative in Kenya and Africa, especially now that donors are switching from grants to loans, as a new UN report recently indicated.
As per the report, demand for climate finance in Africa is increasing yet donations are shrinking, with some donors now preferring to give loans as opposed to grants for development and climate change mitigation efforts. The net effect of this worrying trend, for a country and continent that is used to donations/ grants for development and climate-related emergencies/ disasters is likely to be dire.
Source link : https://www.downtoearth.org.in/amp/story/africa/whats-ahead-for-turmoil-ridden-kenya-as-tax-reforms-are-dropped-amidst-climate-crises
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Publish date : 2024-07-04 10:43:07
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