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The National Treasury unveiled its taxation strategy for the next financial year which will be Kenya Kwanza government’s first budget, outlining how the government intends to raid citizens’ pockets to fund its operations.

While the taxes are intended to support the Sh3.6 trillion budget, some of the proposals may actually stymie economic growth.

Among the raft of changes to raise the money, the taxman will be targeting the nascent creative industry which has been the hub of job creation for thousands of youths.

The sector, which has also mainstreamed itself as the alternative media for advertising and marketing, will be hit with a 15 per cent tax on payments relating to digital content monetisation, as a withholding tax.

This will hit the thousands of youth, including TikTokers and Youtubers, who are making money from the gig economy as content creators.

Owners of platforms that facilitate the exchange or transfer of digital assets, such as cryptocurrencies tokens, will also feel the pain of the new tax measures.

While the optimal level of taxation, and its role in economic growth remains a topic of debate among economists and policymakers, I wager that targeting growth areas during an economic downturn is not the grandest of ideas.

For example, the Finance Bill 2023 proposes the deduction of three per cent from employees pay towards the National Housing Development Fund, while the employer will make an equal contribution. This is another burden on employees and employers.

The only cushion is that both the employer and the employees contributions are capped at Sh5,000 a month.

This comes at a time when both employees and employers are grappling with enhanced National Hospital Insurance Fund contribution for universal health coverage and increased National Social Security Fund contribution. This means further erosion of disposable income.

It is important to have an attractive package when one retires, but the timing for these increments are the problem. And in all fairness, other sources of tax would have yielded better returns.

Kenya being considered a country driven by the growth of small and medium-sized enterprises (SMEs), one would expect that they would be cushioned from the hard economic times.

However, a proposal to raise turnover tax for businesses with revenues from as low as Sh500,000, from one per cent to three per cent, may affect ailing or recovering SMEs since the tax will be administered to even those that are making losses.

It was Winston Churchill who famously said attempting to use taxation as a means to achieve prosperity is a futile effort, akin to a person trying to lift themselves up while standing in a bucket.

If we continue hitting hard on some of the growth areas, we risk having a negative impact on growth by reducing the amount of money available for investment and spending by individuals and businesses.

Kenyans are already overburdened with high taxation. And with the new tax proposals, businesses will have less money to spend and invest while consumers will have less disposable income, leading to a more sluggish economy.

It follows that prosperity is achieved through an interplay of factors, including entrepreneurship, innovation, investment and, above all, consumer spending.

While taxes are certainly an important source of revenue for governments, excessive taxation can stifle economic growth by reducing incentives for investment and entrepreneurship.

What Kenyans need is a more supportive system that encourages innovation so that innovators can invest in core areas of growth and provide incentives that will not only help create new products and services, but also spur job creation.

More taxes will not help Kenya. The country must improve the business environment by reducing bureaucracy, simplifying regulations and improving access to finance.

—The writer is the Business Editor, People Daily