| DAY BREAK | On economic crossroads [Part 1]

Added: 2026-05-20

[00:00:04]This is daybreak and thanks for staying with us. The hashtag on X is citizen daybreak. The SMS code is242 at citizen TV Kenya and at public abandoned. On my media right is Dr. Patrick Mundday who is a development economist and season columnist. Good morning Dr. >> Good morning.

[00:00:23]>> Many thanks for your time.

[00:00:24]>> Welcome.

[00:00:25]>> Appreciate it. Yes, FCPA Billo is a political economist, former Mandera County senator. Good morning.

[00:00:31]>> Morning.

[00:00:31]>> Um, and many thanks for your time.

[00:00:33]Sheila Lang is development economist.

[00:00:35]Many thanks. Good morning, Sheila.

[00:00:36]>> Good morning. Are you >> appreciated and professor Peter Kagua is the chief executive officer of the Africa Policy Institute and he has a summit coming up in Adis, the Ethiopian capital on energy diplomacy. The timing is right for this discussion. That's >> yes. Many thanks for your time ladies and gentlemen. So let's begin with a look at the front pages of the days which uh dove tales into our discussion this morning on whether we are on crossroads and uh the paper sites the array of uh taxes on petroleum products and uh if we are to count ladies and gentlemen that comes to about 1 2 3 4 5 6 7 8 levies and plus excise duty nine and then there is uh the importers margin plus the dealer's margin which comes to about 11 where to increase and where to cut the paper has uh some recommendations for state uh agencies that are mandated by law to address this matter so that is our starting point first coming to your um is this achievable from where you sit >> um thank you and I think it's a big dilemma for the state u looking at the genesis of some of the taxes and levies that we have in that um uh petrol and petrol products for example the most contentious is the VAT.

[00:02:03]Uh if you look at the history of the VAT, it was introduced way back in 2018, but because of um debt obligations that were taken from the multilateral agencies back in 2015 2016. M >> so the government uh took uh credit facilities committing to introduce VAT on those vet products and that's why when the government attempted to reduce the VAT by 16% we saw a response from the IMF and uh the government now faces a very difficult choice because um this debt obligation is still hanging on the government u but here is citizens who are crying for the cost of living um we know fuel is very disruptive it disrupts all the sectors of the economy. So if you at Treasury, you are you are bound by a debt obligation but then you have a crying citizen. Uh but looking at the priorities of the government, you need to protect your citizens. At the end of the day, uh policy choices should be about households incomes, uh businesses and a smooth operating environment. I think the instability that we have seen and the one that we have seen around um this uh taxes, this fuel cost are not sustainable. The government needs to find a sustainable >> uh solution. One because businesses operate on stability.

[00:03:24]>> You cannot have an economy and production where you are waiting monthto month to know your cost of production, to know your cost of logistics and distribution. So I think it's time the government sat down and took a long-term view and took uh strategic policy choices. Uh I think one of the things that is imagine here is that uh policy choices seems to be driven by dealerships where everything is reduced to transaction. You look at the genesis of where we are. It started with a scandal.

[00:03:53]So the moment the issues of um street of horos and for disruptions appeared the first thing that appeared to us was a scandal. a scandal about low quality uh fuel and very expensive to that extent.

[00:04:08]Now if you look at what has happened in the aftermath from the weekend of Easter when this came up, it has been um firefighting after firefighting. There's not even an attempt to find a strategic longterm solutions that brings stability. I think it's time to go back to the drawing board and ask what are the long-term strategic interest of the country. Okay.

[00:04:28]>> How do we protect households? How do we protect uh businesses? Because the repo effect is quite disruptive and then eventually it goes back to the government. The moment you have this shut down this disruptions then the government cannot collect their own revenues.

[00:04:41]>> And a reminder uh before taking effect the VAT on fuel products was first introduced in 2013 in parliament >> as an IMF condition. So we'll retest back because that takes us uh to the role of parliament and um the guardrail role that it ought to be playing under our constitutional order. Honorable Bill coming to you. Ideally, this affects all sectors of the economy is it and the pinch points are clear for the state.

[00:05:10]But uh how will the government navigate the waters apparently given the voices of concern that's coming out of stakeholders.

[00:05:22]>> Thank you. I I think the government needs to look at the bigger picture.

[00:05:27]In my view, the effect, the negative effects on the economy, the disruption of even one day or two days far outweighs the amount of money the government would have put in in terms of um a subsidy or in terms of removing some of those taxes. Look at it. look at our if you look at our GDP of of over 100 trillion you know the and and and the and the and the revenue you know GDP ratio all that I would argue that um if you shut down the economy for a couple of days K would easily lose anywhere between 50 to 100 billion shillings on revenues um and here we are talking about you know providing a subsidy in a month that would be far less than that. So, so I I I I think for me I I really think the government needs to look at the bigger picture and needs to adjust these things because they have significant not just on the economy but also on their pockets because they need to get revenue and they can only get revenue if the economy is performing and and so because what happens in industry, what happens in transportation, in in manufacturing, in many in farming is that people will cut down when expenses go up because you look at your bottom line. If your bottom line is getting eroded, you would want to cut down on your expenses and so the activity will go down, the volumes will go down and performance will go down in businesses and so this will affect your area at the end of the day. Um so so I think um in spite of what you know the the donors and the the need to pay your bills and so forth because I think there's big this is why I I keep saying don't compare Kenya with other countries. Every country has it own peculiar circumstance. Kenya both in terms of policies and the politics and the people they're different but Kenya because of the audit everything seems to be you know really pegged on that issue of how to pay your debt if you're not and that's why IMF and everyone wants to tell you no don't do that >> because you you have a bill to pay if you cut down on your taxes >> you get in trouble but I think it's good for the government to look up in the bigger picture and see that they need to they need to do something in order to keep the economy generate that kind of revenue they need to pay their taxes Yeah, >> um I think I would agree with what has been said before, but I would just add one layer of it because we keep talking about foil, but what we don't realize is that fuel is like the bloodline of any economy. So when you see the price of fuel going up the way it just went, what we should expect as of yesterday, and I'm speaking because I'm the only woman on this panel, and as women, we are mostly in the theme space. So we have produce that we are selling in markets and things like that. And these are essentialmemes are very essential to run this economy. Um I think Dr. here pointed to the fact that you need to be able to plan as a business. You have to be able to anticipate that next month what will be my cost for example if you have a rig for drilling a b hole. Um and that is the same space thatmemes find themselves. So when we are talking about raising the cost of foil as we are doing today what we need to realize is we're going to have a big problem very soon that will come in terms of inaffordability of food and basic commodities because that's what foil does ultimately. It doesn't just stop at transport. What you end up you're going to end up seeing is that the food that we have in, you know, in in our baskets are not being able to get to the markets, for example. And then this has a ripple effect within the economy. So, I would agree that this is when it comes to looking at fuel, we need to look at it holistically and we need to look at it as more long-term. And when people question what is the difference between why is Uganda fuel not as expensive in Uganda as Kenya, I think that they should not dismiss those questions.

[00:09:07]They're legitimate questions.

[00:09:09]um our foil IB is the the tax burden that we have on this one particular product that runs throughout the economy is quite high anywhere between 35 to 40%. And that's quite high and it boils down to economic planning. What is our Kenya plan beyond Uganda and the rest of them? So this question of sometimes I've had people talking about oh Kenya is a middle inome country what is a middle- inome country and that's why it needs to charge for more. We have more paved road than tamak road than tamak road and the rest of them. If you look at the structure of how we price our fuel, it just has five basic components. So the question is how do you want to move those components around to respond to the public but it's Kenyans first. It's we the people ultimately we are the ones who are supposed to be protected by policy. But what we're constantly seeing we are seeing a lot of reactionary policy instead of uh uh uh uh looking long-term and being able to plan. We have leveies and if you look at how the levies started, it was actually in very good planning. They said, "Okay, we have a lot of debt. we need to include this or some of it said we have the petro petroleum development levy for example uh what has happened since then I think now we should have had at least 140 billion of the petroleum development levy that we should have saved by now where is it what happened to it right so we need fiscal discipline we need a long-term solution in terms of economic planning and we need to put Kenyans first >> all right prov coming to you certainly there are external factors which are beyond the uh policy framework of the Kenya government but ideally there should be a domestic recourse measure is it to address this problem given what we witnessed on Monday and on Tuesday actually before we even go to the external because it is easier always to have an escapist approach to things you say my problem is European colonization 60 years down the line uh then my problem is IMF uh because they are saying IMF is not part of the Kenyan sovereignity equation. It's not. So, it is our decision. Now, let me go back to a little bit to President William R's attitude to history cuz he says that we should abolish I think we should abolish engineering and all this given the situation and have only history because if we had a good understanding of where we are coming from ourselves would not be in this damn crisis. Why? Because when the British came in 1901 in in 1895 and built the railway which you see here uh which was dumped Runatic Express, the effect was the worst tax regime ever in any of the colonies that the British had ever had imposed on Kenyans. And the most of most of the people from Mount Kenya region and western Ky the farmers those who are seen as agriculturalists uh will remember the ka and the and their livestock here uh you know everything was taxed at a certain time they got to an absurd point where when they said there's heart attacks meaning you have to tax every heart and men abolish hearts and only have one hand they introduce something called this is obscene but not it must be said matita tax for every girl that has breast you have to pay taxes that's a way of basically you know hunting everybody and who pays for that it's men you go to work in the farms and so on why to repay the railway so we started off on a huge tax regime that that our nationalistic struggle is based on the kapand system and the kapand system was a way of tracking labor in order to pay taxes uh in order to do the railway in 2021 Now we are talking about eight levies on one commodity or rather on multiple commodities but on this side the energy which is the bloodline of our economy.

[00:13:00]So I wanted us to stay with that that we need to to shift our political economy from one that is dependent on taxes to one that is dependent on production. you expand production so that the taxes are lower, more income from this kind of uh you know income and how do you bring production? I mean every investment that you do must be geared towards expanding the economy so that you have a wider tax base. That's it. Second, um you recall that uh one of the problems we have here is that uh we we run a regime that is trying to balance between uh distribution and production and we have been more in on the side of distribution meaning we have become a more a merchant economy than a production economy. You know we are importing tiles the question is oh where are you getting your tiles from?

[00:13:56]I'm getting them from Egypt. No mine are from Turkey. Why are you going to Egypt?

[00:14:00]Because Egypt is in ei region and therefore no not big taxes.

[00:14:07]These are the kind of debate we are having a country not how can we use our own resources to produce tiles locally so that we create employment and expand the tax base. So an a consumer a mercantalist economy an economy that is based on that is really uh the danger that we have. The third point is political entrepreneurship and we must call us speed as speed. Our elite do not go to power to help service the public through the institutions.

[00:14:39]They go there specifically to leverage their own companies, their own businesses so that they make profit. And therefore between private individual I mean private interests and national interest we are caught in between there because how would you want to explain to me as a Kenyan because I need this and I know I'm aware that I'm a middle income economy and I'm very proud of that >> you're lower middle income.

[00:15:07]>> Well whatever wherever you are yeah I'm a middle income economy.

[00:15:12]>> You're not middle income.

[00:15:12]>> Yes.

[00:15:14]I'm in the middle blanket. I'm not a Uganda. I'm not a bundi. You you get what I'm saying?

[00:15:19]>> Antonia is with us in the same bracket.

[00:15:21]>> That's okay. But that said, >> how do you explain to me that Uganda passes its oil through our port in Mombasa here? Uh if it is not, then it is Tanga, but largely it's our pipeline.

[00:15:36]and that their fuel is 173 that is uh petrol and 187 that is diesel that Rwanda is 177 that Ethiopia which is ladlocked and has to move its oil from Djibouti port of Djibouti to a Saba over 1,000 kilometers is 118 for diesel and 135 for I mean for petrol I mean diesel 135 and it is running the Africa's largest airline and it is not in crisis.

[00:16:09]I mean it doesn't matter what explanation you are going to give of the Kenya's exceptionalism as to why we must be the way we are. There is a policy failure that need explanation from the government.

[00:16:25]>> Yes, Dr. and then to legitimate questions.

[00:16:30]>> Yes. Um first I think uh the the issue of um the the global shocks uh economic planning is there to take into account both domestic and foreign shocks.

[00:16:42]>> So if I'm a planner in this economy or a treasury wherever I am or in the ministry of planning I should have anticipated this risk from the global environment. So economies are supposed to be built to have resilience against external shocks and then once the shocks materialize then you need a strategic and structured response. That's not what we are seeing. Uh but also adding to what prov is saying I think at the policy level and especially for the tax um policy makers in this country they presume that it is individuals who pay taxes but we don't pay tax. The tax comes from the economic activities that we're involved in. For example, the tax that I will pay to K is not my own. It is based on the economic activity that I'm engaged in. And I think when we are looking at these taxes and especially for the current administration, how they have been reacting, they've been trying to see every citizen must pay, they forget the tax comes from a base and the base is economic activity. So we are making policy changes that are destroying the base that is supposed to be generating the the taxes. So in the long term in the in the medium and in the long term the government is earning hurting its own um tax revenue base and I think when you look at the the trends on some of the key um stable tax bases like pay excise and all that if you look at the last few years the trend has been on a decline not in an increase meaning that there's a shift that is hurting the base from where the taxes are coming from. So I think it's it's very important for the government to understand that these taxes that you're pushing on individual economic units both citizens and businesses it comes from somewhere and that somewhere is what needs to be protected and that somewhere can only be protected by policy choices. Now let me refer a bit to the G2G and the explanation given reason um behind the G2G. The G2G was supposed to manage the exchange rate but when you look at the the reason why we had a problem with exchange rate where the government was arguing that um the oil marketers are always demanding a lot of dollars and putting pressure on the exchange rate. Now that is the easy question. The difficult question is why should um retailers be competing for dollars to import um basic things like toothpick from foreign countries.

[00:18:55]>> Um a supermarket is competing with oil marketers uh manufacturers for dollars to import basic clothing um basic utilities in our uh homes. And uh the government reacts by saying let's sign an agreement. Now this agree agreement boxes us into kind of a monopolistic system where we don't have wrinkle way.

[00:19:20]And I think uh the legitimate question people are also asking is what was signed? Nobody knows what was signed.

[00:19:25]>> The oil marketers are saying we also don't know. So if the operators and the dealers in the sector do not know what was signed then what is this obligates the Kian government that you don't have options because we know in in a good economic system the market is the greatest um differentiate of cost and production cost. So here we have um a deal that we do not know the deal that bros us to a certain uh supplier >> and then the marketers cannot go and have a market price determined by the market itself. So I think this is a very dangerous place we are in and that is not the only problem and I think provers alluded to that there's no taxes that can cure greed for those who are in policym because uh it's quite a big anomaly and professor has alluded to it where you have the billionaires in this country are not entrepreneurs they are not manufacturers they are not innovators >> the qualification to become a billion in this country is to win a political office >> or get appointed in a senior government office. So that's a very big anomaly in our economy. So I think it's a very big structural problem just um let me clarify I was in politics and I'm not >> so it's not everyone now the I want to just comment on two things. Um one I think is um you can I I think this it's easy to compare pro two countries.

[00:20:51]>> Mhm.

[00:20:51]>> But there are so many factors in those two nations that are completely different in the way the nation operates, the way >> the lifestyle, the way the government, you know, so many things change that have so when you compare the price of petrol in Kenya or Uganda, you may find it misplaced completely. I don't think that that is appropriate.

[00:21:08]>> I think you need to look at this nation economy. It's completely different the way we operate from those countries in many ways. I'll give you a simple example.

[00:21:16]>> For example, our revenue, you look at why our revenue collection in Kenya is more than all those East African countries combined.

[00:21:25]And you and this this matter we have talked about for the last 20 years plus.

[00:21:29]It's more than the revenue tax revenue from Uganda, Tanzania, Rwanda, Bundi combined, Kenya, >> Kenya's annual tax collections. Yeah.

[00:21:40]>> Wherever you take your cup of tea, you would talk about why is the regime not tacking my road? Why is this development not being done? Why is this government not providing this? I mean so there are so many you know activ things that happen that then we have created a culture as a government that lives much differently from how the other governments operate. If you Ethopian Airlines for example you mentioned >> go and check what an Ethiopian pilot for Ethiopian Airlines earns and compare with what your pilots here earn and try to give them that salary and the following day they'll down tools you I mean you do you ever hear Ethopian airlines employee pilots down tools because of union thing I mean our entire system really work ethics and culture so many things are different the most significant is the corruption in public service which which really takes a third of the entire revenue that that is being collected and this is something that has been there over the last since independence.

[00:22:33]So, so that so that I I I think if you say let us remove all those taxes then you you end up in a situation where tomorrow then the other sectors manufacturers will say also we are losing manufacturers businesses are going to Uganda and Ethopia and you know Egypt's manufacturers because of taxes let's remove those taxes tomorrow the other sector will say also our taxes are too much remove it all the taxes are removed >> you can't run this country so me I'm looking at it from a different perspective that really it's not about comparing with other countries is about our own country is it being run properly?

[00:23:06]>> Okay.

[00:23:06]>> Can we address the issues that are really causing all that costs that creating all that need for revenue?

[00:23:11]>> We don't need so that's why every time sorry I want to finish by saying you know um you every time we discuss here on the budget some of us have argued that our problem is always on the expenditure. It's not really in the revenue. So and the expenditure is a matter that really Kenyans don't want to spend a lot of time on including the policy makers in government or parliament because that is where the issue is. So as long as our expenditures are not addressed the grid for revenue will continue increasing. government will not be able to >> plenty ladies and gentlemen to discuss because that uh takes us to uh the place of merit in awarding public service and ideally where we should be starting uh when we get back from the break here on the broadcast including retracing what the president promised on the 26th of July 2022 more than four years ago and his knowledge of the raft of taxes we discussed here and he had some solutions which have not been effected ever since he ascended to the presidency in September the same year. Stay with us.

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