A Covid-Era Discussion: Mobility of the Informal Sector, Fiscal Legitimacy and the Fiscal Contract in Kenya

This research paper examines the impact of COVID-19 lockdown measures on Kenya's informal sector and the resulting strain on the country's fiscal social contract. The authors argue that a lack of fiscal legitimacy, driven by corruption and poor service delivery in healthcare, discourages the informal sector from participating in direct taxation, while government fiscal relief measures primarily benefited formal taxpayers.

• The Kenyan informal sector comprises approximately 83.6% of the employed population, yet the national fiscal system relies heavily on indirect taxes because only 28% of the population is registered for income tax.
• Government lockdown measures and curfews severely impaired the informal sector, which lacks remote working capabilities and limited protections, while fiscal relief measures targeted formal income taxpayers more than the informal sector.
• To mitigate economic strain, the government implemented several tax reductions: the VAT rate dropped from 16% to 14%, the upper limit of the effective tax rate decreased from 30% to 25%, and the Turnover Tax rate for those with annual turnovers under 5 million Kenya shillings was reduced from 3% to 1%. Additionally, individuals earning less than 24,000 Kenya shillings per month were exempted from PAYE.
• The pandemic exposed a compromised fiscal social contract, evidenced by poorly equipped quarantine centres, a lack of testing reagents, and pre-existing healthcare failures such as strikes by doctors and nurses due to pay disputes between national and county governments.
• Fiscal legitimacy in Kenya is undermined by a lack of transparency, corruption in the tendering process for COVID-19 financing, and the use of the criminal justice system to enforce WHO measures, such as fining people for not wearing masks.
• There is a significant gap between the number of registered voters (averaging 19.6 million) and the total population (47.6 million in 2019), with only about 4 million of the 7.6 million registered taxpayers filing annual returns.

APA

Waris, A., & Maina, M. (2020). A Covid-Era Discussion: Mobility of the Informal Sector, Fiscal Legitimacy and the Fiscal Contract in Kenya. Public Affairs Research Institute. https://pari.org.za/covid-mobility-informal-sector-fiscal-legitimacy-kenya/

Chicago

Waris, Attiya, and Mwaniki Maina. A Covid-Era Discussion: Mobility of the Informal Sector, Fiscal Legitimacy and the Fiscal Contract in Kenya. Public Affairs Research Institute, 2020. https://pari.org.za/covid-mobility-informal-sector-fiscal-legitimacy-kenya/.

Wikipedia

{{cite report |last1=Waris |first1=Attiya |last2=Maina |first2=Mwaniki |title=A Covid-Era Discussion: Mobility of the Informal Sector, Fiscal Legitimacy and the Fiscal Contract in Kenya |publisher=Public Affairs Research Institute |date=3 December 2020 |url=https://pari.org.za/covid-mobility-informal-sector-fiscal-legitimacy-kenya/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{waris2020covidera, author = {Waris, Attiya and Maina, Mwaniki}, title = {{A Covid-Era Discussion: Mobility of the Informal Sector, Fiscal Legitimacy and the Fiscal Contract in Kenya}}, institution = {Public Affairs Research Institute}, year = {2020}, month = dec, url = {https://pari.org.za/covid-mobility-informal-sector-fiscal-legitimacy-kenya/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }