Audit firm PKF urge government to address inflation, public debt
Audit firm PKF has proposed a raft of expert measures to government aimed at checking the runaway inflation rate and a ballooning public debt that has weighed down on Kenyans and brought untold economic distress.
While addressing the media earlier today in Nairobi on its position on the state of the economy and pre-budget outlook, PKF observed the public debt is mainly attributable to exchange rate fluctuations, explaining that 51 per cent of Kenya’s debt is held in foreign currency (USD, Euro, Yen, Yuan and Sterling Pound) which exposes the country to financial risk in the event of depreciation of the Kenyan Shilling.
They cited the Kenya National Bureau of Standards (KNBS) report on Consumer Price Indices and inflation rates for March 2023, the overall year on year inflation rate was estimated at 9.2 per cent as at March 2023 up from 5.6 per cent in March 2022.
“This was a breach of the ceiling of the Central Bank’s 2.5 per cent to 7.5 per cent target range. Escalation in the inflation rate was as a result of an increase in the price of food and non-alcoholic beverages, furnishings, household equipment and routine household maintenance, housing, water, electricity, gas and other fuels and transport.” PKF Chief Executive Officer Alpesh Vadher said.
Alpesh added that the increase in food prices could be attributed to the long drought in most parts of the country while increased cost of fuel is a cascading effect from the international market as a result of the ongoing Russia-Ukraine conflict, removal of fuel subsidies and the depreciating Kenya Shilling against the US Dollars.
In what paints a grim picture in future if the controversial Finance Bill 2023 that proposes hike in taxes levied sails through, PKF said that Kenya is experiencing the third highest inflation rate recorded since March 2022 with highs of 9.6 per cent and 9.5 per cent recorded in October and November 2022.
They added that this was followed by a subsequent drop to 9.0 per cent in January 2023 before rising again to the current level of 9.2 per cent.
Further, PKF claimed that the economic shocks negatively drove the Monetary Policy Committee to increase the benchmark interest rate, global risks and their impact on the domestic economy which call for tightening of the monetary policy.
On exchange rates, they observed that the Kenya Shilling has recorded a depreciation of 12 per cent against the USD to close at KES 139.35 as at June 2023, from KES 123.4 on January 3, 2023, adding to a 9.0 per cent depreciation in 2022 and further depreciation of 3.6 per cent and 7.7 per cent in 2021 and 2020 respectively.
On the soaring cost of living, they said the proposed changes in the Finance Bill 2023 to exempt Liquefied Petroleum Gas (LPG) from VAT, Railway Development Levy (RDL) and Import Declaration Fee (IDF) will to a great extent help lower the cost of living.
They observed that the expansion of tax base which they said remained narrow, they proposed a widening of the tax base to promote equity and fairness in the tax system.
PKF recommended the government should to tap into recent technological advancements to aid in tax collection while monitoring and facilitating compliance across all sectors of the economy.
To spur economic growth, the audit firm noted that measures to step up consumption in the economy and consequent increased consumption will drive up business and production and lead to job creation and resultant income levels.
“One of the canons of taxation stipulates that a tax should be convenient to both the taxpayer and the government. By being convenient, a tax should be levied at a time or manner which is most likely to be convenient for the taxpayer to pay it. We call upon the government to maintain the payment dates for withholding taxes as the 20th day of the following month after deduction to ensure the tax system is convenient to encourage compliance.” PKF said.
