Kenya’s tax proposals for the fiscal year 2024/2025, particularly the Finance Bill 2024, continue to elicit negative reactions even after President William Ruto refused to sign the contentious bill on June 26, 2024.
The Finance Bill 2024 which had been approved by the country’s national assembly and was awaiting presidential assent sought to raise an additional $2.7 billion from domestic sources to fund the $30 billion budget beginning July 1 this year. The bill which has since been withdrawn triggered countrywide anti-government protests in Kenya since June 18, 2024, mostly led by Gen Z and millennials who termed the tax proposals as punitive amid the elevated high cost of living.
The proposed tax law for the new fiscal cycle has also faced opposition from various sectors of the economy as businesses anticipate new measures that are feared could erode little gains companies have made especially after the Covid-19 pandemic which saw the Kenyan economy contract by 0.3% in 2020 before bouncing back to a growth of 7.5% in 2021 according to the World Bank.
According to the country’s treasury, Kenya’s economy is projected to grow by 5.6% this year supported by agriculture, services and retail and wholesale sectors.
Look out for key tax changes
With the government under pressure to collect additional tax revenues to meet development and debt obligations, Kenya’s tax plans are expected to change regularly a factor which will force businesses to adjust accordingly.
Way forward
With the law expected to be reintroduced in due course to guide expenditure in the next fiscal year, businesses especially importers could be forced to downsize their workforce and cut operational expenses in a bid to remain afloat.
A survey conducted by the country’s central bank in March this year revealed that the majority of chief executives expect the cost of doing business, increased taxation, the economic environment and declining consumer purchasing power to affect their firms’ growth and expansion in the near term.
For instance, 45.5% of CEOs expect growth in the manufacturing sector to remain the same compared to 27.3% who expect higher growth and 27.3% who expect lower growth.
How small businesses can make adjustments
In tough economic times, time and money are two commodities that business owners have very little of. The challenge is therefore for small and medium enterprises (SMEs) to find ways to reduce waste, make the most of any available resources and boost the business functions that produce the highest return on investment. Even the most well-run businesses can make improvements.
SMEs should look into these three business areas when evaluating which changes can be made to make your operations more efficient:
Be smart about spending
As a business evolves and grows, it begins to incur certain expenses that may not have been part of its financial outflows during its first few years. Some of these expenses could include subscription costs on software packages and tools, upgraded machinery and equipment, marketing costs, additional professional services such as consultants and legal advisers, and licensing fees. While some of these costs may be imperative to sustaining a business, runaway expenses can begin to add up when they’re not closely monitored.
Cutting unnecessary costs is one of the most essential parts of effective cashflow management. If left unchecked, these hidden costs are like leaks in your ship that cause revenue to slip away unnoticed. Becoming more efficient means plugging these leaks by cutting costs – even if just as a temporary measure, until stability returns.
Now is the time to close unused subscriptions and memberships, review your bank charges, cut back on non-essential travel, reevaluate your office supply budget and go paperless to reduce spending on printing and paper usage.
Unlock your team’s potential
Another key focus area is staffing. In challenging economic times, SME staff members are often pushed to their limits and called upon to go above and beyond to make sure that the business keeps running. While asking staff to increase their efforts may be essential in surviving in the short-term, it can take its toll on the team. In the long run, this could lead to greater levels of absenteeism, low staff morale, reduced productivity and increased human error.
Ultimately, these factors will cut into your profitability over time and decrease how efficiently your business is making use of valuable human capital. The answer is not to cut jobs or wages in a panic. More effective measures could be to implement flexible scheduling – to meet employee needs while ensuring that the business keeps running during peak periods.
SMEs could also look into upskilling programmes that train employees on how to handle multiple tasks or roles within the business. Cross-training enhances flexibility, reduces reliance on specific individuals, and enables smoother workflow transitions during periods of high demand or staff shortages. This has the added benefit of helping employees to grow within their roles and advance their careers.
Optimise your processes
In tough times, it’s also useful to evaluate the efficiency of processes. For example, inefficiencies in the way that inventory is managed and stored could cause wasted space in a warehouse. Likewise, if the SME’s raw material ordering system is not optimised, it could lead to materials expiring.
To guard against these types of inefficiencies, SMEs need to review their processes from end-to-end, to reduce waste and make sure that the protocols that are in place account for everything the business needs in the most efficient way possible.
You could start by documenting existing processes to gain a clear understanding of how tasks are currently being performed. Use flowcharts or diagrams to visualise workflows and identify potential areas for improvement. Working with an expert business advisor or turnaround specialist from programmes such as the BPI Technical Assistance programme can also help identify areas of improvement in small businesses.
The review could also include identifying bottlenecks where work is slowed down or resources are underutilised. These bottlenecks often represent opportunities for streamlining or automation.
In the process of making your SME more efficient, remember never to compromise on quality. When budgets are tight, it may be tempting to switch to lower quality raw materials or spend less time on after-sales service. However, quality may be the key to differentiating your business in the marketplace and making sure you can continue to offer your customers value when cost pressures are high.
ENDS