Super rich Kenyans could be taxed more

April 28, 2011 12:00 am

, NAIROBI, Kenya, Apr 28 – Prime Minister Raila Odinga has hinted at the possibility of raising taxes on the \’super-rich\’ in order to bridge the budget deficit that will be created by the recent intervention measures announced to cushion Kenyans from the high cost of living.

The Premier said on Thursday that this was one of the options available to the Treasury to raise additional revenue for the government.

"One of the instruments available is to introduce some little tax for the very rich so that we can be able to provide for the poor," the premier said during a meeting with reporters.

Details of how such a measure would be enforced including which wealthy people would be targeted and what percentage they would have to pay were not disclosed.

Mr Odinga said the Treasury had been tasked with that duty and was expected to report back to the executive with proposals of how it could be implemented.

The news is not likely to be received well by the well to-do, many of whom complain that they are already heavily taxed. A similar proposal in United States to tax those who make above $250,000 per year, has been met with objection with those targeted arguing that their income fluctuates and they should therefore not be subjected to tax raises.

The Kenyan government has in the last two weeks announced a raft of measures including waiving taxes and duties on fuel products and imported grains all of which are expected to result in a shortfall in revenue targets.

Alternatives available include borrowing from the domestic market, which is a road that is not very attractive to the Treasury and the Central Bank of Kenya, since it would mean pressuring the already volatile interest rates and inflationary pressures.

The government also has a choice to borrow from development partners, a move that would further raise Kenya\’s debts, which is currently at Sh1.3 trillion.

While admitting that the Treasury was hard pressed to find other sources of funding, Economic Secretary Dr Geoffrey Mwau said they were trying to rationalise the budgets of the various ministries and ensure that they are able to meet their targets and financial obligations.

This is because when the Treasury issued the Budget Policy Statement in March this year, the biggest shock they were trying to address was the drought that was being experienced in various parts of the country.

Then, the government had projected that it would only be able to raise Sh605.9 billion, against a target of Sh609.6 billion in ordinary revenues for the 2010/2011 financial year.

But with the spiralling commodity prices which have forced the government to step in to mitigate the situation, the scenario has changed.

This will be a tough call for the Treasury as it is unlikely that reprioritising of ministries budget will raise adequate resources to cover all the obligations.

Despite this however, the government is keen to ensure that it does not jeopardise its future growth and as such has no intent of deferring its development projects.

"What we are trying to do is to safeguard is our capacity for future growth and even the capacity to allow adjustment process," CBK Governor Prof Njuguna Ndungu said.

Although the measures announced by the government were meant to contain the runaway inflation and lessen the burden on Kenyans, the Governor cautioned that there would be a lagged effect on the economy.

Already, financial experts have started to downgrade their GDP growth rate projections for 2011 to between 4.5 percent and five percent but there is optimism that with time, the economy, which has been touted as resilient, will bounce back.

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