BUDGET DAY

Budget Day: Why state caught between rock and hard place

Tough balancing act for Yatani in budget statement

In Summary

• The impact of the global pandemic has not spared Kenya which has witnessed massive job loses, a decline in economic activity, increased expenditure in the health sector and shrinking revenue collections.

• Kenyans seem to have resigned themselves to fate and do not expect anything outstanding pronouncements from the 2020/21 budget.

Treasury boss Ukur Yatani
Treasury boss Ukur Yatani

Ukur Yattani reads his first budget statement this afternoon since asuming the finance docket at a time when the country reeling from the effects of Covid-19.

The impact of the global pandemic has not spared Kenya which has witnessed massive job loses, a decline in economic activity, increased expenditure in the health sector and shrinking revenue collections.

Kenyans seem to have resigned themselves to fate and do not expect anything outstanding pronouncements from the 2020/21 budget.

 

Lucy Wamae, a fruit vendor at Kona Stage Market in Gachie hopes that this year’s budget will cushion households from the rising cost of living which has been worsened by a slump in revenue due to coronavirus effects.

"Budget speech is empty if it does not address ugali, sugar and fuel prices. We used to look forward to the Budget Day during President Daniel arap Moi’s regime," the 65 year old Wamae told the Star.

 
 

According to her, Moi knew how to address issues touching on ordinary citizens.

Dan Munyoki, a boda boda rider is still bitter after the government compelled them and tuk-tuk owners to purchase insurance cover for their customers in last year’s budget.

"I hope Yatani will overrule that crazy order in his budget speech. Insurance firms have classified us in most risky category, charging us exorbitant premiums. What do we take home after such fees and daily bribes to the police?" Munyoki said. His position is supported by fellow boda boda riders. 

Charity Mogi, a hotel receptionist who has since turned to hairdressing after losing her job expects Treasury to outline favourable tax measures to stir business activities and limit job cuts.

In March the government outlined several tax measures to cushion the economy against effects of coronavirus, but Yatani will have to add more even as he balances between revenue generation and resuscitating economic growth.

 

Tax expert Peter Mwai, foresees a further cut on VAT by at least 1.5 per cent or two to ease prices on basic household commodities.

‘’There is no other way to cut on commodity prices without slashing on VAT. Production level is already low, other incentives like easing transport cost and market linkages are largely brick and mortar hence capital intensive and time consuming,’’ Mwai said.

 
 

According to him, opening of import floodgates is another sure way of ensuring steady supply of affordable food in the market. He however warns that such a measure will have devastating effect on local producers.

In March, President Uhuru Kenyatta cut value-added tax rate to 14 per cent from 16 per cent and corporation tax reduced to 25 per cent from 30 per cent.

He also gave total tax relief for Kenyans earning a monthly income of up to Sh24,000  to increase their disposable income and cut five per cent Pay-As-You-Earn ( Paye)  for those earning above that amount. The measures took effect in April.

Lynnet Mwithi a manager at Taxwise Africa Consulting LLP holds a contrary position to Mwai indicating that essential goods, including foodstuffs such as maize, bread, milk among others, are either zero-rated or exempt.

Alcohol and cigarette producers in the country are hoping that the government will give them a reprieve from the annual increase of sin tax.

BAT Kenya managing director Beverley Spencer-Obatoyinbo, said data on illicit trade shows that a marginal decline has been offset by a significant increase in the volume of illicit cigarettes coming across the Ugandan border, which now accounts for approximately 70 per cent of all tax-evaded cigarettes in the country.

She said the illicit business continues to deny the State up to Sh2.5 billion in revenue annually.

“Last year, we were disappointed by the 15 per cent increase in excise duty on cigarettes, wines, and spirits. We appeal to the government to look into this,’’ Obatoyinbo said at a past press conference.

Even so, the Treasury has proposed  a 20 per cent adjustment on excise duty relief for  Keg beer, a move likely to  cause an increase in production cost for beer manufacturers, technically passed to consumers.

“It means that beer manufacturers have to meet an added 20 per cent,” Abraham Rugo, International Budget Partnership’s Kenya country manager said

Funding of the Big Four Agenda and rebuilding the economy from Covid-19 impact remains a daunting task.

Rugo noted that Kenya will be presenting a leaner budget of Sh1.73 trillion, almost Sh100 billion less compared to Sh1.8 trillion presented for 2019/20.

He expects the exchequer to cut on expensive foreign debt even as he seeks fund to finance Sh823.2 billion budget deficit.

Last week, the Budget and Appropriations Committee approved Sh1.80 trillion for recurrent spending, Sh584.9 billion for development and Sh316.5 billion for the devolved units.

KRA is expected to collect Sh1.62 trillion in ordinary taxes 14.4 per cent of the GDP) ; a decline from Sh1.64 trillion (16.1 per cent of GDP) in the current financial year.