Okoa Uchumi’s analysis and proposals for the Finance Bill of 2024

June 4, 2024

We, the Okoa Uchumi Campaign partners and citizens from different parts of Kenya dedicated to strengthening public participation and social accountability in the public debt process are deeply concerned by the Government’s recently released estimated budget for the 2024/25 FY and the Finance Bill of 2024.

Contrary to constitutional provisions, the National Assembly is considering the Finance Bill, 2024 before approving the Appropriations Act 2024, which is unlawful. The Finance Bill 2024 is based on the FY 2024/2025 budget estimates submitted on April 30, 2024. The Finance Act and Appropriation Act are interdependent, with the former generating resources and the latter detailing expenditure. Section 39 (4)(a) of the Public Finance Management Act mandates that revenue raised must align with the approved fiscal framework. Enacting the Finance Act 2024 before the Appropriations Act 2024 constitutes a fraudulent scheme of mismanaging taxpayer funds.

It is on this basis and in the interest of the Kenyan Citizens who are at risk of suffering more harm in access of essential services necessary for greater enjoyment of fundamental rights and freedoms due from the government of Kenya and pervasive and extractive tax remittance that we highlight the following concerns: –

Estimated Budget 2024/25FY

The estimated Budget for the 2024/25 FY reveals that some sectors which are key drivers of the Kenya economy have experienced massive budget cuts. This is going to affect basic service delivery to the Kenyan citizen. The key sectors affected are: –

i. Education and Research

Education and Research are state departments in the sector which are proposed to budget cuts. This will reduce the number of those who attend school and the quality of education offered. The free primary and secondary education programs will have their allocation reduced by Kshs. 12.03 billion. One can easily infer from this that education is not really free per se. The Higher Education Loans Board (HELB) is also set to be reduced by Kshs. 3.69 billion. The resultant is that access to higher education will be jeopardized as many rely on HELB to fund their university education. The number of those pursuing further education to university will decline. While the government constantly refers to inclusion of vulnerable groups in service delivery, it is set to drastically compromise on the right to education for special needs schools by significantly reducing its budget by 42%. This is a retrogressive step in the right to education which ought to be progressively realized.

Further, while the government promised to increase the number of learners who benefit from the school feeding programme to about Kshs. 16 million, in its executive proposals for 2024/25, no budget line has been allocated towards school health, nutrition and meals. This situation places a significant burden on many school-going children who struggle to attend school. To keep these children in school, well-wishers have been stepping in to fill the gap left by the government, often using their own money and organizing private fundraisers. However, they will now be forced to dig even deeper to sustain these efforts through meal provisions. For many of these children, having a meal provided at school is a crucial motivator for their attendance. Without this support, the risk of increased absenteeism looms large, as a reliable meal at school is not just nourishment, but a lifeline for their education and future.

ii. The Health Sector

The State Department for Health is set to have its budget shrink by 10.6%. One of the projects affected by the reduction in this budget is the Free Maternity Program (The Linda Mama cover), which has in the past aided pregnant women to access maternity care free of charge. This allocation for the free maternity program has been reduced by 50%. We are thus likely to witness unexpected financial burdens on families which could lead to an increase in unsafe home births and the quality of healthcare received by mothers and their newborns could potentially be compromised. This budget cut further affects general administration of health facilities to a tune of 10.26 billion. This has a direct impact on human resources and the general operations of health facilities. This crisis arises amidst ongoing strikes by clinical officers and medical laboratory technicians, while doctors are just returning from industrial action. The budget estimates pose a serious threat to the country’s health security system, particularly affecting the counties, as health services are a devolved function. Further to this, the National government continues to claw back gains made by devolution in the health sector by compelling counties to sign into the Medical Equipment Service program, where counties hire medical equipment whether they have the capacity or not. The Budget Estimates 2024/25 projects that the program shall use 3.56 billion. This may be celebrated as a good idea but to most counties it is too expensive and is unsustainable. This threatens the ability of counties to offer quality primary healthcare to Kenyans.

iii. The Agriculture Sector

Kenya’s economy is heavily reliant on agriculture, and it is among the nations who committed to end hunger by 2030. Nevertheless, with the current budget cuts by 18% in the agriculture docket in the department of Agriculture, Rural and Urban Development (ARUD) this might be far-fetched. Across all state departments in this sector, the development side of the budget is facing a higher cut at 21 percent, compared to the recurrent budget, which is also slashed by 11 percent. This suggests that projects related to infrastructure and long term investments might be more affected than the day-to-day operational costs within the sector. Given the recent disaster in the country, one would deem it prudent that the government upgrade its disaster management responses and channel appropriate funds to that sector, yet from the budget estimates the allocation in this sector has been reduced to Kshs. 10 billion from Kshs. 24 billion. Lack of sufficient funding in this docket can be catastrophic when disaster strikes and can lead to loss of lives, means of livelihood and deteriorated health among citizens because of lack of adequate response mechanisms and service delivery.

iv. The Social Protection and Disaster Response Sector

Under the social protection sector, the State Department for Social Protection and Senior Citizens Affairs will receive an 8% reduction in its budget allocation. Moreover, the allocation to the SPCR sector in FY 2024/25 is roughly equivalent to its 2020/21 allocation of Ksh. 70.1 billion, a period between which the service delivery demand or requirement of social protection cannot be said to have stayed the same. On the other hand, the Women Enterprise Fund will receive a massive reduction of 40% in its allocation.

v. Increased Public debt servicing

Debt repayments are set to account for 39% of total expenditure, and 63% of projected ordinary revenue in the 2024/25 FY, an increase of 26% from the 2023/24FY. We opine that this allocation is based on the government’s wishes and desires and not the welfare of its citizens or the Kenyan economy. Several independent institutions are set to have their budgets cut. For instance, to be able to also service its public debt, a department such as the office of the Auditor General that plays a critical role in carrying out audits and reporting on the use of public resources by all entities funded from public funds will have its budget slashed. At a time when the advocacy efforts are being put to have the public debts audited, a reduction in their funds will most likely paralyze the office and prevent it from efficiently carrying out its duties and this threatens economic growth and sustainability of service delivery to citizens. This is also a flagrant violation of Article 203 (1) of the Constitution which prescribes that in matters of equitable share the national interest should take precedence.

However, it is very disturbing that while the budgets of such crucial sectors have shrunk, the number of MDAs within the executive have had their budgets increased. Finally, we note that the budget process remains low on public participation with no engagement at the constituency level, and most of the feedback is neglected.

The Finance Bill, 2024

The non-citizen-focused budget is proposed to be financed by increased taxes to Kenyan taxpayers without commensurate investment in apt service delivery; thus, the burden on Kenyans is set to be further worsened if the Finance Bill, 2024 is passed into law. The Finance Bill, 2024 enshrines unfair, unjust and harsh clauses which will be to the detriment of the common mwananchi. The Bill is keen to impose heavy tax burdens on the common mwananchi by attacking every aspect of their lives, from the food they eat for health and spiritual communion, to the cars they use to travel either as commuters or owners, the communication sector that is a major source of social cohesion and health to the banking sector where mobile banking sector that dries most economic transactions in Kenya. A Kenyan taxpayer is staring at a short, miserable life with a raft of violations from the government.

Despite the government’s elaborate plans to increase the tax burden, they have not reciprocated the same energy towards the fight against revenue leakages through corruption, illicit trade and money laundering. According to the Ethics and Anti-Corruption Commission, Kenya loses KSh. 608 billion/= (7.8% of the country’s GDP) to corruption annually. The Corruption perception index 2023 places Kenya at a score of 31/100, which shows deterioration in the Kenya anti corruption efforts. It is under this premise that the Okoa Uchumi asserts that continued taxation without accountability is extortion.

An attempt by the government to meet its debt obligations, some of which are odious debt and hence not legitimate and should not be a burden to the citizens. The Bill more specifically:

i. Enshrines a proposal exempting KRA from the constraints of the Data Protection Act in accessing taxpayers’ data. This is a flagrant violation of one’s right to privacy as set out under Article 24 (2) of the Constitution of Kenya, 2010. There are high chances of surveillance for taxation purposes to be used for persecution.

ii. Proposes to remove gluten bread and unleavened bread from VAT while also removing VAT zero rating on the supply of ordinary bread, milk, cream and all inputs and raw materials produced both locally and imported. This is bound to increase these items’ costs, and the majority will not be able to afford them. This will be an abuse of the government’s duty to ensure that food is available and accessible. A clear violation of the right to food.

iii. Proposes to introduce a tax on motor vehicles at 2.5% of the value of the vehicle. The implication of this is that it is likely to increase the tax burden of citizens. This tax is problematic because it is not progressive in nature because the minimum tax payable will be Kshs. 5000 hence owners whose cars are less than Kshs. 200,000 will pay more than 2.5% of the value of their vehicles. On the other hand, those whose vehicles are more than Kshs. 4,000,000 will pay a lower tax rate since this tax is capped at Kshs.100,000. This tax is unjust and burdensome to middle and low-income earners.

iv. The proposal empowers KRA to require taxpayers to integrate eTIMS. Failure to comply with this requirement will result in a monthly penalty not exceeding Kshs. 2 million. This will mainly target and hurt small businesses since large businesses are already integrated with KRA systems.

v. The proposal is to increase the import declaration fee from 2.5% to 3%, which will increase the cost of imported goods.

vi. Proposal to increase the excise on telephone and internet data services. This comes at a time when the government declared its support for the digital world. Imposing such a tax will hinder many from accessing information purposes such as education and current affairs and will also impact the ease of communication.

The purpose of this letter is to highlight and bring to attention the negative effects that the budget estimates for the 2024/25 FY and the Finance Bill, 2024 will have on public service delivery, and the economy at large. The protest on some proposals of the Finance Bill 2024 are grounds to show that Kenyans can shape the fiscal discourse in our country as provided for in our Public Finance Management Act, 2012 and the Constitution of Kenya. We desire to see a country where accountability is highly valued and where talks on the fiscal consolidation are led by the Executive and the Legislature in a manner that is dignified, justified and takes into account the welfare of ordinary Kenyan Taxpayer ambaye anategemewa.

For Okoa Uchumi’s full analysis, with feedback on specific clauses in the Finance Bill, see here.

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