This week, the stage is set for a face-off between Kenyan lawmakers and the country’s Treasury. The long-standing dispute on tax finally has its day on the floor of the Parliament and the two sides couldn’t be more different. On one hand, the Treasury wants to raise revenue by raising taxes while on the other, lawmakers do not want to worsen the micro-economic impact on the average citizen. Kenya’s inflation rate has risen to 7.1% in May and Patrick Njoroge, Governor of the Central Bank, believes that it will soon exceed the Monetary Policy Committee’s envisaged range of between 2.5 and 7.5%. Factors such as housing, water, electricity, gas and fuel which account for 14.6% of the inflation basket increased by 6%. The lawmakers also rejected the National Treasury’s plan to double the digital service tax to 3%, saying that the difference will most likely be passed over to the consumers. Lekan Onabanjo starts off the week’s first episode of Business Edge with a look at the pushback by Kenya’s lawmakers on tax proposals. He’s joined by Aly Khan Satchu, Africa geo-economist and CEO of Rich Management from Nairobi, Kenya.
Kenya’s inflation has been in a similar position for a while now and is a complex puzzle, Satchu says. To alleviate the pressure on the citizenry, Kenya’s government has subsidies in place on certain items such as fuel and electricity and as such, the inflation is depressed somewhat, even at the 7.1% that it currently is. He adds also that Kenya might be running out of options as regards the inflation issue, having tried subsidies on fuel. Currently, that costs the government $66 million per month. One of the ways to drastically bring down inflation is by implementing monetary policies that will take the interest rate higher than the inflation rate. This is exactly the bone of contention with the lawmakers.
Watch the conversation on Business Edge above.