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Kenya Plans New Taxes to Fund Higher Wages for Doctors, Teachers

Oct. 5 (Bloomberg) -- Kenya’s government said it will introduce new taxes and cut spending to cover the cost of a 25.5 billion-shilling ($300 million) wage increase that ended a strike by state teachers, lecturers and doctors.

The measures will raise 40 billion shillings, ensuring that the additional expenditure for the salaries and other unspecified costs is “fully covered,” Finance Minister Robinson Githae told reporters today in Nairobi, the capital.

Teachers at Kenyan state schools began a strike on Sept. 3 to demand a 300 percent wage increase and returned to work on Sept. 24 after reaching a deal with the government, according to the Kenya National Union of Teachers. Lecturers called off a one-week strike on Sept. 19 after being awarded a 33 percent pay rise, the Nairobi-based Daily Nation reported on Sept. 20.

Kenyan doctors yesterday called off a month-long strike after the government agreed to meet their demands, Kenya Medical Practitioners, Pharmacists and Dentists Union Chairman Victor Ngani said on a broadcast by Nairobi-based Kenya Television Network.

The tax measures announced by Githae today include raising 4.5 billion shillings from a 10 percent excise duty on cash transactions using mobile-phone money-transfer systems such as Safaricom Ltd.’s M-PESA product. The government will also receive 14 billion shillings from the African Union for its role in supporting a peacekeeping force in Somalia, as well as 10 billion shillings from surpluses held by industry regulators, he said.

Regulators

The agencies include the Communications Commission of Kenya, the Capital Markets Authority, the Insurance Regulatory Authority, the Retirement Benefits Authority and the Central Bank of Kenya, Githae said.

The teachers’ pay hike will raise an additional 5 billion shillings from increased income tax while expenditure cuts will save the government 12.5 billion shillings, he said.

Kenya, where Tullow Oil Plc said in March it’s discovered oil, is also studying a capital-gains tax for the mining, oil, gas and other natural-resources industries, Githae said, without providing more details. He also didn’t specify what spending cuts are planned.

Growth in Kenya, East Africa’s biggest economy, slowed to 3.3 percent in the second quarter from 3.4 percent in the previous three-month period as record interest rates stifled lending.

Monetary policy will remain “tight” in order to curb inflation, Githae said, without elaborating. Inflation slowed for a 10th consecutive month in September to 5.3 percent.

To contact the reporter on this story: Eric Ombok in Nairobi at eombok@bloomberg.net.

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net

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