Capital FM (Nairobi)

Kenya: Experts Urge Govt to Reduce Domestic Debts

Nairobi — Kenyans especially in the formal sector stands paying higher taxes in the near future if the government does not come up with a domestic savings framework apart from the current pension scheme.

Sammy Muvellah, Asset manager at the Zimele Asset Management said the current domestic revenues cannot service the continued debt increase.

Speaking at a forum organized by the Institute of Economic Affairs (IEA), Muvellah said the increased borrowing will continue to limit economic growth since the government will be paying huge debts all through from the low collected revenue.

"If we continue with the current deficit that we are running, that is the national debt and the budget deficit, we will have either to experience higher taxes or continued increase in interest rates in our economy. So we have to redesign our systems to reduce the deficit, that is, cut on some spending and reduce the cost of credit," Muvellah said.

He said to start with, the government should first make the pension contributions mandatory to every single Kenyan either in the formal sector or informal sector before coming up with several development funds.

The current national domestic rates stands at 4.2 percent which he said is very low.

The Kenya Revenue Authority (KRA) has also been urged to hasten the process of growing the tax base.

Muvellah said it was sad that only 2 million Kenyans in the formal sector are the ones who continue paying taxes, while close 8 million Kenyans in the informal sector continue to escape the tax man.

"The government cannot continue to borrow at this rate. It is very expensive; it is taking away a lot of resources used to spend on servicing huge debts. Looking forward, we need to address the issue of debt as a national issue. We also need to address the issue of tax base in terms of revenue generation," he added.

At the moment, the government is spending over 150 billion in servicing loans.

"I would want the media to correct this notion that with the coming in of the new government, taxes will increase. There is nothing like that. The only risk at the moment is increase in debt and having less revenue getting to the exchequer," said Kwame Owino, IEA Chief Executive Officer.

In the recent supplementary budget, the Treasury allocated KRA over Sh2 billion to come up with a systems of sealing all tax loopholes and increase revenue collection.

The authority expects to collect Sh881 billion compared to Sh707.4 billion realised last year, in this financial year.

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