11th June 2020

Kenya tables Sh3.2 trillion budget

Estimated reading time: 10 minute(s)

Kenya’s government, through the Ministry of Finance, is on Thursday, June 11, 2020 expected to unveil a Sh3.2 trillion Budget for the year starting July 1 (2020/2021 Financial Year).

Treasury Cabinet Secretary Ukur Yatani will table the maiden budget statement before the National Assembly, where he is expected to push for implementation of tax measures.

These taxes include new taxes on items like cooking gas and bread and a stimulus package to jumpstart the Kenyan economy which has been ravaged by the Covid-19 pandemic which was first reported in Kenya in March.

Tax relief

These will include elimination of tax reliefs for hiring helicopters, buying aeroplanes, tractors, cookers and tax breaks for importation of cars by civil servants working abroad.

Gas has been moved from the old rate of tax-exempt to the 14 per cent VAT bracket, meaning that it will now cost more.

National Treasury makes drastic cuts in 2020/21 financial year ...

If approved by Parliament, the tax measures are expected to shore up revenues to fund the 2020/2021 Budget, which will increase by 21 per cent from the current set expenditure of Sh2.68 trillion for the year ending this month. 

The proposed tax changes are contained in the Finance Bill 2020, which has already been tabled in the National Assembly.

Other measures include the introduction of minimum tax of one per cent on company sales, a digital tax of 1.5 percent on sales of foreign tech companies with earnings from Kenya like Uber and Google and removal of relief for workers saving for home ownership.

Expanded Budget

“This will be a simplified format of the Budget estimates and the Finance Bill that are already in Parliament. There will be no new taxes beyond the changes declared in the Finance Bill,” Yatani told the Business Daily on Wednesday.

The expanded Budget includes the Sh53.7 billion package to keep the country afloat as the coronavirus pandemic ravages lives globally.

A total of Sh5 billion has been set aside to hire local labour for infrastructure works in an effort to put money into the pockets of Kenyans hit by job cuts and unpaid leave.

The government will release Sh10 billion to fast-track payment of outstanding VAT refunds and other pending payments as well as hire thousands of teachers and health workers.

Kenya’s economic growth is expected to drop to 1.5 per cent this year, and contract one percent in the worst-case scenario under the impact of the pandemic.

Curbing Covid-19

To curb the disease’s spread, Kenya has suspended commercial flights in and out of the country, imposed a nationwide night curfew and banned public gatherings.

It also offered tax cuts to cushion the economy from the Covid-19 shocks such as cuts on the value-added tax rate to 14 from 16 per cent and corporation tax from 30 to 25 per cent.

The maximum income tax rate also dropped to 25 per cent from 30 per cent, with the cuts setting to slow down tax collection to fund the expanded budget, setting the stage for increased borrowing.

Another borrowing

Tax collections are set to cover just half of the Sh3.23 trillion Budget for the year starting July 1, setting the stage for increased borrowing, with the projected tax that Kenya Revenue Authority (KRA) is expected to collect is Sh1.621 trillion, leaving another Sh1.6 trillion to be raised through borrowing and internal State revenues like fees and fines.

“The tax incentives have been benefiting the individual investors in terms of huge profit margins. In addition, the tax expenditures resulted in unfair distribution of the tax burden due to tax incentives enjoyed by a few taxpayers. It was, therefore, found necessary to review and rationalise the tax expenditures,” Yatani said, insisting that the Ministry is eliminating tax exemptions targeted at the rich to boost revenue collections.

Source: Business Daily

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