Kenya Economic Breakdown

Economic Breakdown

Kenya

April 6th, 2022

Kenya is a former British colony and a nation nestled within East Africa. Kenya is

considered one of the gateways into the African continent as it lies on par with South Africa and

Nigeria. This strategic east African nation is considered an economic powerhouse within Africa.

Kenya is a capitalist state, with the nation being largely privately driven. The Kenyan economic

system is driven by private actors aiming to make profits. They own and control properties based

on their interest, and the forces of demand and supply are largely responsible for setting prices in

the markets. A nation known for increasingly attracting foreign direct investment and

encouraging local investors to diversify, the nation is home to one of Africa's largest

telecommunications giants Safaricom; it houses the largest mobile money market and is home to

the largest bank based on a customer base, Equity group (Genga, 2021; Piper, 2020). Its

capitalist nature is due to its inclination to the west, especially Britain, and France, two nations

that account for the largest foreign direct investment in the nation.

The Kenyan tax system is highly progressive (World Bank Group, 2018b). Citizens are

taxed based on their income. The accelerating schedule is applied in Kenya, where the rich pay

more than the poor. Then there are three tax brackets in Kenya:

Taxable bracket (amounts in

Kenya Shillings)

Tax rate

0 – 24,000 10%

24001-32,333 25%

amount over 32,333 30%

Kenya maintains expensive corporate taxes. Non-resident companies are subject to

corporate taxes only the trading profits attributed to the Permanent Establishment. For resident

companies, which include subsidiaries of foreign companies, the rate is 30%. The rate of

branches of foreign companies and permanent establishments is 37.5%. Kenya is one of the

rapidly developing nations in Africa being weighed down by taxes. There are many taxes right

from the National level to the County level, with the risk of double taxation increasing

drastically. A value-added tax is charged on all commodities; this form of tax is quite high,

reflected in the cost of living in Kenya, which is relatively high. Rental income tax is charged on

income earned from rental payments. Others include excise duty, Capital Gains Tax, and agency

revenue.

The Central Bank of Kenya is the body in charge of monetary decisions in Kenya. Being a

capitalist state, Kenya employs monetary policies to control money. The central bank of Kenya is

responsible for inflation and bank interest rates levels. Tasked with ensuring the Kenya shilling

and other rates are properly weighed and maintained to ensure that the economy remains stable.

Located in the volatile region in the Horn of Africa, the nation is nestled between nations that

have only known conflicts; hence, the central bank of Kenya has a duty and an uphill task of

maintaining monetary policy decisions that will ensure that the rates of inflation are low hence

price stability. The supply of money also needs to be consistent with the prices and growth

objectives set by the Kenyan government. For example, the central bank of Kenya has

maintained the inflation rate at5.56percentage as of April 2022. The lending rate is 12.17%, the

deposit rate is 6.61%, and the savings rate is 2.56% (all rates are based on the last monetary

policy meeting).

Kenya maintains a Fiscal policy overseen by the Treasury department. Its fiscal policy is

reflected in the budget policy; for example, in 2021, the nation's fiscal policy aimed at raising

revenues from the projected 16.3% of the Gross domestic product in the financial year

2021/2022, raising it to 17.5% of the subsequent financial year 2022/2023 and further to 18.6%

in the medium term (THE NATIONAL TREASURY AND PLANNING, 2021). The 2021/2022

fiscal policy is aimed at supporting the resilience and sustainability of the economy in its

recovery and reducing fiscal deficits, mobilizing revenues, and promoting inclusive growth.

The monetary policy includes in 2021, the central bank of Kenya July sitting maintained

the Central Bank rate at 7.00% after cutting it by 125 basis points in March/April 2020 (Okoth,,

2022).

In January, the monetary policy committee maintained its rate at 7% for the 12th

consecutive time (Okoth,, 2022). It further maintains a monetary policy decision of maintaining

the overall inflation rate at a target range of 5±2.5 percentage.

Works Cited

Genga, B. (2021). Bloomberg - Kenya’s Biggest Bank Targets Seven-Fold Customer Growth by

2025. Bloomberg Business.

https://www.bloomberg.com/tosv2.html?vid=&uuid=37bf9d13-b50b-11ec-b840-

6c4275794452&url=L25ld3MvYXJ0aWNsZXMvMjAyMS0wNS0yNi9rZW55YS1zLWJp

Z2dlc3QtYmFuay10YXJnZXRzLXNldmVuLWZvbGQtY3VzdG9tZXItZ3Jvd3RoLWJ5L

TIwMjU=

Okoth, J. (2022). CBK to Hold Top Policy Meeting on Jan 26th. Kenyan Wallstreet.

https://kenyanwallstreet.com/cbk-holding-the-first-World Bank Group. (2018). Kenya

Economic Update: How Kenya is Using Tax Revenues to Enhance Access to Education and

Healthcare for Low-Income Families.

Piper, K. (2020). How M-Pesa, Kenya’s mobile money banking, transformed the lives of the

poor. Vox. https://www.vox.com/future-perfect/21420357/kenya-mobile-banking-

unbanked-cellphone-money

THE NATIONAL TREASURY AND PLANNING. (2021). 2021 BUDGET REVIEW AND

OUTLOOK PAPER. https://www.treasury.go.ke/wp-content/uploads/2021/10/2021-

Budget-Review-and-Outlook-Paper.pdf

World Bank Group. (2018b). Kenya Economic Update: How Kenya is Using Tax Revenues to

Enhance Access to Education and Healthcare for Low-Income Families. World Bank.

https://www.worldbank.org/en/country/kenya/publication/kenya-economic-update-how-

kenya-is-using-tax-revenues-to-enhance-access-to-education-and-healthcare-for-low-

income-families