This articles is based on te thoughts of Kenyan Economist David Ndii.
Last evening I took a walk to my neighbourhood mall Rosslyn Riviera. Quite a few businesses have signs that they closed until further notice, the hair salon, health spa, music school/dance studio, golf simulator—understandably so since these are close contact services.
These micro and small enterprises (MSMEs) are the engine of the economy. There is a myth that MSMEs are all informal, unregistered enterprises that do not pay tax. Not true. According to the KNBS MSME Survey, there were in 2016, 1.6m licensed MSMEs.
These MSMEs employed 6.3m people (3X the formal private sector), paying Sh34b tax a month, Sh270b a year which in 2016 was 23% of tax revenue (Sh1150b). These MSMEs were paying workers/owners Sh10b a month (see table) The ones that have closed in my local mall belong here.
This is the economy for which my open letter to President Uhuru Kenya proposed a lifeline fund, so that at very least the owners and workers can feed their families. Having listened to President Uhuru’s pronouncements, I am at loss as to what policy analysis informed them.
For the duration of the crisis, their income/turnover tax returns will be NIL, VAT returns NIL. I doubt they have cash reserves for salaries—PAYE returns NIL. These and many businesses are not going to pay taxes, the unpaid workers can’t spend, tax revenue is sure to fall.
Yet govt proposes tax breaks without cost cutting. I am at a loss as to how this is a rational responsible policy for a govt that was in a fiscal crisis before the COVID-19 shock, or how tax breaks translate to food on tables of ordinary people who’ve lost incomes and jobs.
We can only hope that in coming days, Uhuru Kenyatta and his govt will hear the cry of the people. As I said in my letter, this is our last big ask Mr. President. Kenya is not big business. Listen to the people for once. They are who you’re there to serve. Vox Populi, Vox Dei
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