Kenya and Sub-Saharan Africa Urged by IMF to Implement Tax Measures Thoughtfully in Light of Public Concerns

Kenya and Sub-Saharan Africa Urged by IMF to Implement Tax Measures Thoughtfully in Light of Public Concerns

The International Monetary Fund (IMF) has recently recommended that governments in sub-Saharan Africa, including Kenya, introduce new tax measures in a phased manner.

This advice comes in the wake of a public uproar against recently legislated taxation measures. The IMF contends that the success of new policies is heavily dependent on the government’s ability to influence public opinion. This can be achieved by demonstrating that the reforms bring quick benefits or by advocating for their long-term desirability.

Postponement of Difficult Fiscal Reforms

The IMF has also suggested that challenging fiscal changes should be deferred until macroeconomic conditions are more favorable and adequate compensatory measures are in place. This counsel comes at a time when the public is engaged in a heated debate over the implementation of the 2023 Finance Act. This Act includes new taxation measures such as doubling the Value Added Tax (VAT) on petroleum products and introducing a new housing development levy.

Public Petitions and Revenue Mobilization Plan

These new measures have sparked public petitions that could potentially disrupt the revenue mobilization plan. The draft Medium Term Revenue Strategy, currently in the public participation stage, has also elicited public criticism with its subsequent tax proposals. One such proposal is the removal of reliefs under the pay-as-you-earn system, which could result in a further reduction of net pay for salaried employees.

Additional Proposals and Public Criticism

Additional proposals like the Unemployment Insurance Authority Bill, which calls for a three percent salary deduction to provide for a stipend to employees declared redundant, have met with similar criticism. The IMF’s recommendation of a staggered implementation of these new tax measures could potentially alleviate the public’s concerns and backlash against these changes.

IMF’s Role in Revenue Mobilization

The IMF’s Revenue Mobilization Thematic Fund (RMTF) was launched back in June 2016 in partnership with several donor agencies. Its main focus is to assist low and lower-middle-income countries in improving their tax capacities. The RMTF supports comprehensive reforms in tax systems, including redesigning tax policy frameworks and strengthening revenue administrations. It also provides targeted support for specific areas of the tax system where improvements are most needed.

Diagnostic Tools and Training

Diagnostic tools play a key role in defining reform priorities and subsequent capacity-building activities. Tools like the Tax Administration Diagnostic Assessment Tool (TADAT), the International Survey on Revenue Administration (ISORA), and the Revenue Administration Gap Analysis Program (RA GAP) are used to assess where the impact of technical assistance would be highest and to monitor the progress of reforms. Synergies between IMF technical assistance and training are achieved to maximize the beneficiaries’ capacity for tax reform.