The cost of living in Kenya is expected to go up drastically after the government agreed to remove tax exemptions on various sectors in complying with International Monetary Fund’s (IMF) demands.
In a letter of intent addressed to IMF, the government agreed to remove tax exceptions on sectors including agriculture, education, tourism, health, manufacturing, finance, energy and social work. This is expected to push up the cost of basic commodities such as milk, maize flour, and sugar which are currently sold at a discounted level.
The changes which will take place from July are aimed at cutting fiscal deficits in the current government spending which are making the government to over-rely on borrowed cash to fund its budget. This has caused the public debt to swell to Sh4.6 trillion causing questions over its management among various stakeholders.
Petroleum products currently exempted from consumption tax are set to attract 16% VAT from September as a follow up of a deal made by the government with IMF in 2015. This will result to rise in the cost of basic commodities and cost of travel further pushing up the cost of living.
The National Treasury and the Central Bank of Kenya are also set to either remove or modify interest rate caps and delay the implementation of some development projects in line with IMF’s demands to access Sh150 billion precautionary loan (SBA). This is set to make loans more expensive and less money available to Kenyans through borrowing.