President Uhuru Kenyatta (pictured) yesterday confirmed workers’ worst nightmare; that jobs will be lost to the coronavirus. The president then promised tax interventions but fell short on specifics.
Instead, Uhuru indicated that some employees might have to deal with pay cuts and in more severe cases, outright layoffs, as the unprecedented spread of the virus cripples different sectors of the economy.“We are also looking at other areas where from a fiscal point of view we want to see what we can also do to support our people and country during this difficult time,” the president said in a televised address.
Interventions from a fiscal perspective would include reducing the taxes paid by companies and individuals to lower the cost of operations and stimulate consumption, respectively.
It is, however, unclear on the shape or form of the proposals, and whether they would ever be rolled out.
Economists agree that cutting Pay As You Earn (PAYE) would put more money in consumers’ pockets, but does the president have the luxury of raiding his single biggest source of revenue for the Kenya Revenue Authority?
Ground to a halt
Kenya Private Sector Alliance believes the income tax should be halved for anyone earning below Sh50,000 in the next six months, and a 20 per cent cut given to the rest.
So far, seven cases of infection have been confirmed in Kenya in the global health crisis whose tally has surpassed 205,000-mark, but whose implications on the economy are dire.
Tens more are held under quarantine, as authorities await the outcomes of tests to confirm whether they were infected, having interacted with the patients.
Hotels and restaurants are leading the way in sending workers home as businesses ground to a halt following mass cancellations on travel, conferences and meetings.
For the hospitality industry, the gravity of the coronavirus pandemic has been instantaneous, with complete lockdown in several countries that are source markets for tourists.
More sectors reeling from the pain caused by the virus, including horticulture, travel and manufacturing, are taking similar steps, sacking workers in part of what could be the start of a recession.
Options available to Uhuru are minimal compared to bigger economies like the US, where President Donald Trump has lined up the equivalent of Sh100 trillion, part of which will be mailed to individuals.
Centum Managing Director James Mworia said the government might have to either forego or defer payable taxes that are falling due, to enable businesses take care of their employees rather than lay them off.
Businesses continuously pay duties, including Value Added Tax, whose computation is declared every month. Since it has been confirmed that the ravages of the pandemic is slowing economy, Mworia said, such payments could be retained to cushion employers.“Employers can use this money to retain their workers by meeting the payroll expenses rather than layoffs, which will further stress more people who depend on the salary,” said the Centum MD.
He added that employers could also be allowed to defer the surrender of employees’ income taxes, which are deducted from their monthly salaries, to enable them to navigate the rough economic terrain.
“… tax breaks, even in the form of deferred payments of withholding taxes and PAYE, will significantly help businesses with cash flow management, which is going to get very tight, especially because customers may delay payments as business slows down and businesses manage their cash flow,” Mworia said.
VAT is payable by the 20th of every month, while employers are required to surrender the deducted employees’ income taxes by the 9th of the subsequent month.
Mworia faulted the decision to suspend operations of the land registries, indicating that it would close an avenue for borrowers to collateralise their property when seeking credit.
Tabitha Karanja, the chief executive of Keroche Breweries, said lowering the income tax on individuals would mean more money in their pockets and hence a bigger spending power.
Cutting of other taxes would also translate to cheaper products, which more consumers can afford, said the brewer who projected that the possible lockdown would disrupt consumption patterns.“Tax reduction is an important decision to be considered. This is imperative to maintain demand by consumers and counter negative growth in production occasioned by quarantines and change of consumption patterns,” Ms Karanja said.
On the supply side, she wished that banks could be given incentives to provide loans urgently and at lower rates to companies to finance their operations and avoid massive layoffs.
Easing access to credit was among the concessions that banks agreed to in yesterday’s State House meeting, even though only time will tell if the lenders would follow through on their pledge.
President of the Kenya National Chamber of Commerce and Industry Richard Ngatia said the government should consider bailouts for worst-hit sectors.
Temporary relief
“Some companies would be disproportionately hurt and could only survive if the government injects money directly to ensure they remain afloat through this difficult time,” he said, citing that other countries had taken similar measures.
In the aviation sector, for instance, most planes are grounded while operating costs, including leases, continue to pile, which leaves bailouts as the only way out.
Nikhil Hira, director at Bowmans Kenya – a business advisory firm – concurred on planning bailouts but was quick to point out that Kenya did not have as much resources. Such bailouts could be extended on condition that the employers commit not to send home any of their workers.
He added that companies should be afforded more time to file and submit taxes.“Some businesses may not be in a position to make the filings because of the long process that is involved. Due to the lockdown, some firms might not be able to process the tax returns,” Hira said, citing supermarkets as companies that deal with “lots of invoices”. He cited cashflow challenges that could also hamper the ability of the same businesses to pay taxes.
“They should be given a temporary relief, where everything, tax filings and payment, is delayed with penalty,” he said.
Maxwell Ndung’u, the Managing Director at Longhorn Publishers, said he would like the government to ensure the faster circulation of money in the economy by targeting to clear all pending bills.
“Small and Medium-sized businesses will have a massive strain in cash flows if the current situation persists, but quick payments and even payment advances will go a long way in stabilising these companies,” he said.
Geoffrey Odundo, the Nairobi Securities Exchange chief executive, said the economy needed a stimulus package or other incentives, including moratoriums on loan servicing.“We are happy to see the banks are giving some incentives through restructuring of loans, and where possible, moratoriums. I think that is going to address the concerns of the investors and some of the issuer companies in terms of helping the companies mitigate losses during this intervening period,” he said.
Churchill Ogutu, the head of research at Genghis Capital, welcomed the proposed relief on loan repayments as announced by lenders, coupled with restructuring of SME and corporate credit.
Mohamed Hersi, the chairman of Kenya Tourism Federation, expects that the president will issue an Executive Order waiving interest on outstanding loans among hoteliers.“That would have been very crucial for us rather than asking individual companies to go and meet their bankers, which basically says that you are on your own,” Hersi said.
Political leaders also gave their proposals on the possible interventions to deal with the economic impact of Covid-19.
John Mbadi, National Assembly Minority Leader, yesterday said any measures to cushion ordinary Kenyans needed to be well thought out to achieve maximum impact. “We need to avoid a situation where measures do not benefit the intended persons or where money is stolen.
Before we jump into populist measures, we need to think over it,” said the Suba South MP.
Kimani Ichung’wa, the National Assembly Budget and Appropriations Committee chair, said while the measures stated were welcome, they were still too little to cushion a majority of Kenyans who were already reeling under the weight of a struggling economy even before coronavirus.“There is no single bank that will be shut down if it does not charge its customers interests on loans in the next three months.
Banks are making profits in billions, and it is only moral that they share these profits at such a time,” said the Kikuyu MP.
Kiambu Town MP Jude Njomo warned that measures to lower taxes might take time to trickle down to the ordinary person. “It is a step in the right direction, especially where loans are concerned,” said the lawmaker.
Senate Majority Leader Kipchumba Murkomen said government should take measures to cushion workers in the informal sector. “Let us think about Kenyans in the Jua Kali, who cannot afford to stay at home or work from home, and even if they do – at the end of the day, they must interact with the end user to sell their products,” said the Elgeyo Marakwet Senator.
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