Relief as Covid incentives to run until 2021
Lewis Njoka @LewisNjoka
With the infections curve appearing to flatten, Kenyans are eager to go back to their normal lives, complete with a fully re-opened economy.
Re-opening the economy, however, entails a gradual removal of some of the economic cushions put in place to mitigate against the adverse effects of Covid-19, in a move that could pile more economic pressure on vulnerable Kenyans.
Already, many Kenyans are feeling the heat after some cushions put in place earlier are set to be removed.
In August, the government announced that it in the first week of October, it would stop the free weekly cash transfers to poor households affected by Covid-19 pandemic.
Since May, the government has been sending a Sh1,000 stipend to 341,958 households, especially those living in slum areas, transferring Sh1.36 billion to beneficiaries every month.
Earlier in June, Kenyans were saved the pain of reverting to higher mobile transaction fees after the Central Bank of Kenya (CBK) extended the waiver on transaction fees under Sh1,000 for another six months after the initial 90-day period lapsed.
The waiver, introduced on March 16 could cost Safaricom about Sh16.2 billion in the nine months up to December, considering that it costs the telco Sh1.8 billion every month, according to its mnagement.
Churchill Ogutu, the head research at Genghis Capital, however, says he does not foresee a major withdrawal of the covid-19 interventions, especially the fiscal and monetary ones, happening soon.
“I don’t think it will be soon. Even across the globe there is still that wait-and-see approach, due to the possibility of a second wave of infection.
Even in developed markets, that’s the approach they have adopted,” said Ogutu.
“Looking at the budget numbers, I don’t think it has been pre-empted at the moment. It will come gradually,” he added.
He said removal of some the interventions may not have a severe impact on individual finances.
“Tax relief was intended to increase disposable income. But now, the challenge was those people who have lost their jobs or on reduced income.
They are not benefiting from that intended increase in disposable income,” said Ogutu.
He projected that the economy would recover robustly starting 2022 but the recovery will again be hampered by the general elections.
Mobile transaction fees
Ogutu’s sentiments were echoed by Samuel Nyandemo, a senior economist at the University of Nairobi, who said he did not expect a roll back on the interventions abruptly.
Commenting on the presidential address, Nyandemo said although the removal of the interventions will definitely affect individual finances, the period given was significant, considering that the government also needed to raise revenues.
“The government also requires to generate revenue. It is a win-win situation where the government will give the various concerned parties a leeway up to December and if the economy picks, that period is enough to enable everybody to stabilize,” he said.
The interventions put in place by the government to cushion Kenyans, fall into various categories including fiscal, monetary, social, health, manufacturing, education, agriculture, tourism and water and sanitation.
Others are 100 per cent tax relief for low income earners and reduction of VAT from 16 to 14 per cent among others.
Monetary interventions included suspension of the listing of entities with CRB’s, restructuring of bank loans for financially stressed clients, and the reduction of CBR to 7.25 per cent which has been brought down further to 7 per cent.
There are fears that all these interventions could be removed as the economy recovers, a move that will impact individual finance.
In his address to the nation yesterday, President Uhuru directed that the 100 per cent tax relief for persons earning less than Sh24,000, and the 14 per cent VAT be retained up to end of this year.
Pay As You Earn and corporation tax will also be maintained at 25 per cent up to the end of this year before reverting to pre-Covid levels.
“Today, and in support of our small businesses and innovators, I direct as follows: That the National Treasury considers retaining VAT at 14 per cent until January 1, 2021.
Two, that the National Treasury considers retaining the Income Tax Rate (Pay-As-You-Earn) at 25 per cent until 1st January 2021,” said President Uhuru.
He further directed that the turnover tax for SMEs be maintained at one per cent as opposed to the pre-covid level of three per cent.
