Bumpy economic ride for William Ruto’s first 100 days

President William Ruto is expected to outline broad measures his new administration will take to grow tax compliance levels, which will be key in his plan to gradually wean Kenya off costly external debts.

Ruto will in his inauguration speech today (Tuesday) announce measures to tackle the food crisis and bring down the cost of living -- perhaps the most pressing challenge of his administration in the first 100 days -- including slashing fertiliser prices.

But the heavier task ahead for the new President, as he settles down to work, will be dealing with the mountain of debt, the wage bill crisis, pending bills, and unemployment.

Dr Ruto has already directed the Kenya Revenue Authority (KRA) to adopt a friendlier but more efficient tax administration system as part of his strategy to increase compliance levels in an economy dominated by the informal sector.

“As we work together to get our economy out of the mud, I am asking every Kenyan that we must do two very important things [paying taxes and savings]. Each and every one of us must pay their taxes and I have said I am going to lead from the front, making sure I pay my taxes,” Dr Ruto said Sunday.

“I have already talked to the KRA, they are going to be disciplined, professional and they will work with every Kenyan.”

Dr Ruto has said tax compliance is key in expanding programmes aimed at empowering the economically underprivileged groups through what he calls the “bottom-up economic model”.

The model, which featured prominently in his campaign platform for the August 9 closely-contested presidential poll, is anchored on “deliberately promoting investment and financial instruments targeting the millions who are unemployed, hustler [micro] enterprises, and the farmer groups”.

The outgoing administration of President Uhuru Kenyatta grew taxes — excluding levies, building rents, fines and forfeiture levies— from below Sh1 trillion to Sh1.84 trillion in June 2022.

The Kenyatta administration has, however, faced criticism from business leaders who have over the years complained of a tax regime that is largely unpredictable and one that overburdens a few persons and firms in the formal sector with increased taxes.

For example, less than seven million taxpayers are estimated to have been registered on the electronic tax payment and filing platform, iTax, by June 2022 in a country of more than 22 million registered voters.

The compliance levels amongst companies was a modest 11.12 percent of 759,164 registered firms at the end of June, according to the KRA.

The Kenyatta administration has also been under scrutiny for spending more than half of taxes on debt repayments, eating into cash for development projects.

Dr Ruto has pledged to cut down on borrowing from rich countries like China by growing savings from a measly 7.0 percent of gross domestic product (GDP) — a measure of economic output— towards 30 percent envisioned in the country’s long-term development blueprint, the Vision 2030.

“I am looking forward to the day, soon enough, when we borrow from the savings of the people of Kenya to run our development instead of borrowing from other countries, and that is what holds the future for us,” Dr Ruto said.

The outgoing administration, in which Dr Ruto served as Deputy President, relied on loans to build much-needed roads, bridges, power plants and the standard gauge railway (SGR), largely funded by Chinese state-run lenders — Exim Bank of China and China Development Bank.

Dr Ruto’s plan appears to be in line with the recent reform journey the Treasury and the KRA had embarked on.

Treasury Cabinet Secretary Ukur Yatani has proposed an amendment to the law to rebrand the KRA to Kenya Revenue Service (KRA) in a move aimed at transforming “its public image thus enhancing tax compliance through improved public relations and maintaining a clear focus on taxpayers’ needs”.

“The term ‘Authority’ sometimes has a connotation of a command… and commanding is not the real role of KRA. Our role is of service delivery to the people,” KRA board chairman Francis Muthaura told the Business Daily last October.

“We have geared up towards expansion of the tax base as a tool for establishing a stable equilibrium in the taxation equation.”

In a bid to ensure predictability in the tax administration, the Treasury has further drafted a National Tax Policy.

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