Kenya's parliament approves value-added tax cut in virus relief
By Duncan Miriri
NAIROBI, April 14 (Reuters) - The Kenyan parliament on Tuesday voted to lower the value-added tax rate to 14% from 16%, part of President Uhuru Kenyatta's attempts to cushion citizens from the impact of the coronavirus crisis.
Like other economies in the region, Kenya has limited financial room to effectively respond to the economic challenges caused by the virus, after years of higher government borrowing to build infrastructure drove up deficits.
Last month, Kenyatta cut the VAT rate and proposed the removal of income tax on workers who earn a maximum of 24,000 shillings ($227) a month. He also proposed a five percentage points reduction of income tax for top earners and corporations.
The National Assembly was required to ratify or reject the VAT cut within 21 working days after it was implemented by the Treasury on April 1. It is considering the income tax cuts in a separate amendment to the tax law.
"This is an extraordinary moment we find ourselves in. The human race is under attack from the virus," said lawmaker George Murugara, adding that the VAT cut will be beneficial to the economy.
Officials hope it will help consumers weather the economic shocks, while protecting the vast majority of people who occupy the low income bracket through lower prices of essential goods.
The reduction of the value-added tax will also lower costs of raw materials for firms, helping them to stay afloat during the crisis, said legislator Chris Wamalwa.
Others expressed unease about the VAT cut, saying that it will shave 49.5 billion shillings ($467.8 million) from the government's quarterly revenue collection, at a time when more targeted state interventions for the poor and the health sector might be required.
"It may be populist but it is not sustainable," said Amos Kimunya, a ruling party lawmaker, who nevertheless supported the cut.
Apart from the tax cuts, Kenyatta and some of the top government officials have taken temporary, voluntary pay cuts, with the savings going towards efforts to fight the virus.
Kenya has reported 216 confirmed cases of the COVID-19 disease caused by the new coronavirus, and the government expects economic growth to slow to 3% this, from an initial forecast of 6%.
The central bank has cut lending rates, lowered the cash ratio for banks and allowed lenders to restructure loans for individuals and firms who might fall into distress due to the virus.
"Extraordinary times call for extraordinary measures," said Murugara, the lawmaker. ($1 = 105.8 Kenyan shillings) (Editing by Angus MacSwan)
