Tinesha Howell
Professor Baugus
ECON 360
3 October 2021
Milestone 3
A country's ability to maintain an adequate balance of imports and exports is critical. Trade accounts for a sizable portion of Kenya's gross domestic product (GDP), and agriculture continues to be the backbone of Kenya's economy and a key component of the country's development plan (International Trade Administration, 2021). Kenya’s exports of goods and services account for 12.03% of GDP, while imports account for 21.37%. Kenya imports a lot of industrial and transportation equipment, as well as petroleum goods, automobiles, iron, steel, resins, and polymers. The nation’s main trading partners include India, China, the United Arab Emirates, South Africa, Saudi Arabia, the United States, and Japan (World Integrated Trade Solution, 2019). In 2015, net imports accounted for 8% of GDP. Moreover, Horticultural goods, tea, coffee, fish, and cement are Kenya's primary exports.
Even so, government spending is critical to the smooth operation of Kenya’s economy. Government spending has increased at a higher rate than the country's GDP during the last three decades. In 2019, government expenditure in Kenya amounted to about 25.41% of the country's gross domestic product. Much of the requisite for government spending stems from the reality that some products cannot be delivered at all by a free market economy, while others may be under-provided. A substantial amount of government expenditures is spent on meritocratic commodities such as health, education, police, and defense. As of April 2021, Kenya's government expenditure was 2.2 trillion Kenyan shillings which is about 20.3 billion US dollars (Statista, 2021). Expenditures were allocated to interests, income wages, pensions, and maintenance and operation management (Statista, 2021). Project and infrastructure expenses were also taken into account.
Additionally, taxation plays an important role in the nation’s economy as it not only compensates for public goods and services, but it is also an essential component of the social contract that exists between citizens and the economy. Kenya has a comprehensive taxation system that includes income taxes, value-added tax (VAT), and customs and excise duties. These are controlled by separate statutes that provide for the imposition, assessment, and collection of the applicable taxes. The Kenya Revenue Ability (KRA) has many divisions that deal with the aforementioned taxes and has the authority to conduct audits on firms to ensure they are paying the correct tax.
Personal income tax rate revenues are a significant source of revenue for the Kenyan government. According to Trading Economics, the personal income tax rate is 30%, the sales tax rate is 16%, the social security tax rate is 10%, and the corporate tax rate is 30%. Kenya's has an estimated 52 million people in its population with a labor force participation rate of 66.3%, and an average income rate of $150 per month (BBC News, 2017). Kenya is gradually evolving from a developing country with burgeoning markets to a middle-income country. This will boost overall economic growth, living standards, and average income, benefiting all residents.
Kenyan legislators have been listed as the world's second-highest paid parliamentarians, surpassing other established economies within the United States, United Kingdom, and Japan. Kenyan lawmakers are paid a yearly base pay of Sh6.39 million. In 2017, it was reported that on top of their salaries, legislators received personal vehicle loans, car grants, and mileage reimbursements. Finally, in order to encourage both domestic and international investments in doing business, the government has implemented a change to simplify the process of registering a firm. The timing to register a business varies but the process is very simple. Two types of businesses can be established which are private limited corporations, and public limited corporations. However, entrepreneurs starting businesses in Kenya from other nations must all obtain a work permit from the department of immigration.
References
BBC News. (2017, July 10). Kenyan MPs to get 15% pay cut. BBC News. Retrieved from https://www.bbc.com/news/world-africa-40557588.
Economics, T. (2021). Kenya Personal Income Tax Rate | 2021 Data | 2022 Forecast | 2012-2020 Historical. Retrieved from tradingeconomics.com website: https://tradingeconomics.com/kenya/personal-income-tax-rate.
International Trade Administration. (2021, September 13). Kenya - Market Overview | International Trade Administration. Retrieved from www.trade.gov website: https://www.trade.gov/knowledge-product/kenya-market-overview.
Statista. (2021). Kenya: government expenditure 2018-2021. Retrieved from Statista website: https://www.statista.com/statistics/1223279/government-expenditure-in-kenya/.
World Integrated Trade Solution. (2019). Kenya trade balance, exports, imports by country and region 2019 | WITS Data. Retrieved October 3, 2021, from Worldbank.org website:https://wits.worldbank.org/CountryProfile/en/Country/KEN/Year/LTST/TradeFlow/EXPIMP.