Kenya’s middle class now sitting target for tax raids

Experts are warning that some middle class families may not be as stable financially as the government thinks. FILE PHOTO | SHUTTERSTOCK   

By DOMINIC OMONDI More by this Author

Kenya’s fledgling middle class is increasingly bearing the brunt of the high cost of

living, which has been aggravated by various State policies that have pushed up prices of power, water, airtime, fuel and beer.

The middle-class' woes have been compounded after the Ruto administration started implementing policies to use the consumer class to cushion other segments of society.

Pronouncements by Kenya Kwanza officials, including economist David Ndii and Trade Cabinet Secretary Moses Kuria, have made it clear that the class is not just a cash cow for the government, it should brace for more policies geared at supporting the bottom of the pyramid popularly known as the hustlers.

On Friday last week, for example, the Energy and Petroleum Regulatory Authority (Epra) approved higher power tariffs to be charged by the electricity distributor, in what is likely to hit the middle class more.

Read: Middle class to pay Sh2.7bn more per month for power

Under the new tariff aimed at protecting Kenya Power, the middle class, who consume between 31 units and above, will be hit the hardest alongside small commercial customers.

Data from the Kenya National Bureau of Statistics (KNBS) shows that a big fraction of Nairobi’s middle-class' income is used on electricity compared to the other income groups.

Unlike before, a growing number of the middle class, or those who earn between Sh46,356 and Sh184, 394 in a month, have filled up their homes with heavy power appliances such as washing machines, deep freezers, microwaves, refrigerators and electronic equipment.

“The thinking behind these policies by the government is that the middle class are high consumers. They are behind the opening of malls because they consume more goods and services. And they demand more,” says Dr Joy Kiiru, an economics lecturer at the University of Nairobi.

Experts said it is the middle class, most of whom are employed in the formal sector, that cough a lot of direct taxes such as pay as you earn (PAYE), a major source of revenue for the government.

Because of their high affinity for spending (due to the fact that they can easily access credit) the middle class also spend a lot on petrol, bottled water, cosmetics, juice, and alcohol, all of which have been low-lying fruits for all kinds of tax heads.

“Why do I see the same middle-class tweeps who were trolling me and disparaging wheelbarrows camped here demanding cheap power like it’s a matter of life and death, yet data shows they spend more on DSTV, Netflix etc than on power,” said Ndii in an earlier tweet.

Ndii is the chairperson of the President’s Council of Economic Affairs. Soon after Dr Ruto took over power in September last year, he rolled back subsidies that his predecessor had given to Super Petrol and instead maintained the same on diesel and kerosene.

Whereas consumption of diesel is critical for powering the general economy, the affluent also drive cars that use diesel, a move that has seen some petrol users grumble that they are being used to subsidise the affluent.

“If there is a group of people who pay a lot of taxes, it is the middle class,” says the secretary general of the Consumers Federation of Kenya Stephen Mutoro.

Excise taxes on such items as bottled water, airtime, and beer, have also been on an upward trajectory, hitting the middle class’ spending.

“The way we are taxing water you would think that water is a luxury,” said Dr Kiiru. According to her, water should be approached as a health issue, not as a revenue stream.

Many estates, which have mushroomed in Nairobi and its satellite towns are not connected to sewer lines, with many forced to use borehole water which in most cases is not safe for drinking due to high fluoride levels that discolour teeth.

Even for those served with water from the municipal, there have been fears over the safety of this piped resource starting in 2000 when there was an outbreak of water-related disease owing to the use of chalk instead of chlorine to purify the water.

Read: Higher power tariffs for middle class ill-timed

However, since then, the council has not come to assure the public that the water is safe.

“They are not doing anything to make those using council water not buy bottled water,” added Kiiru. Nonetheless, Kenya’s middle class, according to a World Bank report, is not that strong to withstand heavy shocks.

A third of Kenya’s middle class is just a shock away from sliding into poverty, pointing to a precarious position for workers whose spending power has been ravaged by sky-high inflation and the worst drought that cut farmers’ earnings.

“More than one-third of non-poor Kenyans are classified as vulnerable, with vulnerability most common in households that derive most of their income from agriculture, with low levels of education, and/or headed by women,” said the World Bank in a report that gives a road map of how the global lender will help the country attain Vision 2030 -- an anchor growth blueprint -- and reduce poverty in the next five years.

Middle-class Kenyans have been among the biggest beneficiaries of an economic boom witnessed since 2005, which has seen the economy grow at an average of five percent every year.

→ dakure@ke.nationamedia.com