Brace for a tougher 2021

By David Wanjala

Government has terminated some of the tax relief measures that it had extended to cushion households and businesses from the adverse effects of the Covid-19 pandemic. How untimely?

The corporate tax rate, for instance, reverts to 30% from 25% as value added tax reverts to 16% from 14%. On the other hand, the CBK has also ended the free M-Pesa transaction of up to Sh1, 000 even as it rejected banks’ push to reinstate fees on transfer of cash between accounts and mobile phone wallets

This comes at a time when the grip of the impact of the pandemic on households and businesses is getting tighter.

Businesses, not just SMEs but across board have continued to close shop, more so in hospitality, transport and service industry, with the burden falling on households whose breadwinners are becoming jobless every sunrise.

The informal sector, with the dwindling spending power of the masses, has not been spared either. With the opening of schools early in the year, it can only get worse.

The rush to terminate tax relief measures, experts aver, is to save the struggling, heavily indebted economy that is racing towards a sh9trn debt ceiling.

The impact of this pandemic will reverberate and linger a little longer than this government is hoping.

Energies and synergies should be put in more creative measures that would stretch the cushioning of businesses and households a little longer than burying the head in the sand and assuming that things will rush back to normal. Which is what the Government is doing.

My bet would be on slowing on expenditure, shelve some big-spending programmes until further notice and borrow less. Should the Government go on with its pre-pandemic spending plans, as if nothing has happened in between, it risks rising its debt distress to high from moderate.

Besides, it would be forced to not only reverse all the tax relief measures, but to come up with more taxes on a broke, struggling, cornered citizenry, which will be like squeezing water from a stone.

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