D-day as Yatani tables Sh3.2trn Budget for Kenya

Treasury Secretary Ukur Yatani will Thursday afternoon rally the nation behind his Sh3.2 trillion Budget for the year starting July 1, and which includes new taxes on items like cooking gas and bread and a stimulus package to jumpstart an economy ravaged by the Covid-19 pandemic.

Mr Yatani will be presenting his maiden Budget Statement at the National Assembly where he will push for implementation of tax measures that he says are targeted at the rich. These will include elimination of tax reliefs for hiring helicopters, buying aeroplanes, tractors, cookers. It will also eliminate tax breaks for importation of cars by civil servants working abroad.

Other measures include the introduction of minimum tax of one percent 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.

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

The tax measures, set to take effect in July if approved by Parliament, are meant to shore up revenues to fund the 2020-21 Budget, which will increase by 21 percent 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.

This marks the first time that the Budget will be unveiled with Kenyans having prior information on the tax changes, thus reducing the surprise in Mr Yatani’s address.

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

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 percent this year, and contract one percent in the worst-case scenario under the impact of the pandemic.

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. These included cuts on the value-added tax rate to 14 from 16 percent and corporation tax from 30 to 25 percent.

The maximum income tax rate also dropped to 25 percent from 30 percent.

These cuts look set to slow down tax collection to fund the expanded Budget, setting the stage for increased borrowing.

Tax collections are set to cover just half of the Sh3.23 trillion Budget for the year starting July, setting the stage for increased borrowing.

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.

Mr Yatani said that the Treasury is eliminating tax exemptions targeted at the rich to boost revenue collections.

“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,” Mr Yatani said.