President William Ruto's government has drastically cut on debt dependency for its Sh4 trillion budget starting July 1.
The administration is, however, instituting painful tax measures to raise revenues.
The budget presented on Thursday in Parliament by National Treasury CS Njuguna Ndung'u shows the government will borrow only Sh597 billion to fill the budget deficit for 2024-25, almost Sh400 billion less compared to the current financial year.
A dispatch from the Cabinet chaired by President Ruto earlier in the day preempted the expected cut on debt dependency, saying it was part of the government's effort to achieve a balanced debt by 2027.
The country's total public debt is currently estimated at Sh11.6 trillion, gobbling over half of ordinary revenue.
According to CS Ndung'u, borrowing is out of the question since there is a ceiling on how much the government can seek at any time, more so given the prevailing economic status of the country.
He said the situation is worsened even as increasing taxes remains the only option because there are limitations, too, on how much the government can raise taxes.
“There is a limitation and even constraints imposed in terms of public debt accumulation and even the debt-carrying capacity of the economy. There are limitations in terms of mobilising higher tax revenues,” Ndung’u said.
He revealed that the triple pressures to fund raising expenditure needs while cutting on debt dependency and limiting taxation saw the initial budget cut by close to Sh250 billion from Sh4.18 trillion outlined in the Budget Policy Statement in February.
The cut on debt dependency means that taxpayers will have to dig deeper into their pockets to fund the Sh3.99 trillion budget, with the government keen to achieve goals set in its expensive Bottom-up Economic Transformation Agenda (Beta) touching on five key pillars.
The state has allocated Sh257 billion in the upcoming financial year to agriculture, small businesses, housing, health and information technology.
The agricultural sector has been allocated Sh54.6 billion to ensure steady food and nutrition while the health will take the lion's share at Sh127 billion.
To ensure a million affordable low cost houses to fill the country's annual demand of 500,000 units, Ruto's government has allocated Sh92.1 billion to housing while the digital superhighway goal has been handed Sh16.3 billion.
The government has allocated Sh5 billion credit for small traders under the Hustler empowerment programme aimed at creating job opportunities.
Internal revenue mobilisation has exerted more pressure on the already overburdened taxpayer, with the Kenya Revenue Authority now expected to raise Sh2.92 trillion up from Sh2.6 trillion in the current financial year.
This as the government decries low tax collection in a depressed economy.
This year, KRA is likely to miss its collection target by at least Sh300 billion.
Government data shows that in the first half of the 2023–24 financial year, total exchequer revenue fell short of the target by Sh187.6 billion, from a projection of Sh1.46 trillion to actual receipts of Sh1.27 trillion.
The underperformance was attributed to deficits in income tax of Sh88.1 billion, VAT of Sh25.3 billion, and other losses in import duty of Sh19.5 billion and excise duty of Sh29.1 billion.
The National Treasury has outlined several new tax measures aimed at bringing Sh346 billion to the national purse.
Th government made minor amendments on the congested Finance Bill, 2024 in a give-and-take strategy meant to quell public outcry.
Although Treasury honoured Ruto's promise to relax the introduction of VAT on bread, it has maintained motor vehicle tax at 2.5 per cent or a minimum of Sh5,000 in a move likely to push up transport costs, a vital factor of production.
The government has also introduced Economic Presence Tax of 1.5 per cent, a crafty reincarnation of digital tax in the disputed Finance Bill, 2024.
There is also a slight relief for employees who will now pay housing levy as a deductible expense and not as a percentage of gross salary.
Currently, all employees are paying 1.5 per cent of their gross salary towards owning a house, matched at similar rate by employers.
The state has also tactfully spared mobile money users from raised transaction charges, maintaining excise duty at 15 per cent. However, all other financial transactions including bank charges will go up by five per cent if the current tax proposal sails through.
Furthermore, the government has maintained the climate tax which is expected to see products and those packaged in plastics go up.
Even so, it has removed excise duty on imported eggs, potatoes and onions originating from EAC partner states subject to goods meeting the EAC rules of origin.
This is likely to see the cost of those food commodities drop, easing inflation.
In order to meet local demand and enhance food security on key staple foods, Kenya was granted an extension of the current stay of application to import rice at a duty rate of 35 per cent or $200 per metric tonne, whichever is higher, for one year instead of EAC CET rate of 75 per cent or $345 per metric tonne, whichever is higher, and also to import wheat at a duty rate of 10 per cent instead of 35 per cent for one year under the EAC Duty Remission Scheme.
Apart from local taxes, the government is planning to raise money through ministerial appropriations-in-aid amounting Sh426 billion and collect while the government expect a total of Sh51.8 billion or 0.3 per cent of GDP in grants from development partners.
This will push total revenue to Sh3.34 trillion..
Out of the total budget, Ndung’u said recurrent expenditure will amount to Sh2.84 trillion while development expenditure, including allocations to domestic and foreign financed projects, contingency fund and equalisation fund will amount to Sh707.4 billion equivalent to 3.9pc of the GDP.
Counties will receive Sh401 billion, the highest amount since advent of devolution.