BUDGET 2022/23

Food prices, fuel tax ‘hot potato’ as Yatani reads budget

While the government would love to scrap VAT on petroleum products, it is held ransom by IMF's conditions on revenue generation

In Summary
  • He will present a Sh3.3 trillion budget 
  • The expenditures comprise recurrent Shs 2.17 trillion and development of Sh712.0 billion.
National Treasury CS Ukur Yatani during a past budget reading event/FILE
National Treasury CS Ukur Yatani during a past budget reading event/FILE

The skyrocketing cost of living has overstretched families, with prices of basic commodities like food and fuel rising daily 

Today, all eyes will are on National Treasury Cabinet Secretary Ukur Yatani. Will he break or restore the nation's hope by easing the cost of living and doing business in his Sh3.3 trillion 2022/2023 budget?

The expenditures comprise recurrent Shs 2.17 trillion and development of Sh712.0 billion.

Early last month while announcing the budget presentation date, the treasury gave a hint of what to expect. 

According to the notice signed by National Treasury PS Julius Muia, the proposals will be centred on enhancing economic resilience and accelerating economic recovery.

It will also focus on improving livelihoods, cushioning vulnerable citizens and generating more employment opportunities.

"The budget will also look at how to fast track implementation of Government priority programmes under the ‘Big Four’ Agenda,'' Muia said. 

Despite the good intentions, the government has a huge task of generating domestic revenue in order to cut borrowing, with the public debt already above Sh8 trillion. 

It is also facing tough demands from the International Monetary Fund (IMF) which saw it introduces VAT on fuel and gas, whose spiral effect has flared up the cost of living. 

In his budget brief today, the exchequer chief is expected to outline a series of tax and expenditure measures, but experts warn that households and businesses should not expect much to change. 

On Monday, PKF CEO Alpesh Vadher said that although VAT on fuel and gas should be scrapped as a matter of priority to ease the cost of living, this is not likely to happen. 

"Easing the high tax regime on fuel will automatically ease the cost of living. However, the treasury is not likely to go against its promise to IMF, meaning tougher times ahead,'' Vadher said. 

According to Vadher, the exchequer is keen to raise enough resources to complete President Uhuru Kenyatta's legacy projects under the Big 4 Agenda while cutting the accumulation of public debt.

Revenue collection including Appropriation-in-Aid (A.i.A) is projected to increase to Sh2,4 trillion (17.2 percent of GDP) up from a projection of  Sh2.036 trillion (16.3 per cent of GDP) in the current fiscal year.

Ordinary revenues will amount to Sh2.14 trillion  (15.3 per cent of GDP) from the estimated Sh1.8 trillion (14.4 per cent of GDP) this year. 

It is therefore no wonder that the Parliamentary Finance Committee is pushing for the reduction of VAT on fuel to four per cent from the current eight per cent through the Petroleum Products (Taxes and Levies) Amendment Bill, 2021. 

This, despite  Treasury being under intense pressure from IMF  to double the value-added tax (VAT) on all petroleum products in an effort to cut the budget deficit and tame public borrowing.

The IMF’s push for the fuel tax was revealed in an advisory to the government after the fund’s board approved a new loan for Kenya valued at $2.34 billion to help the country continue responding to the Covid-19 pandemic and address its debt vulnerabilities.

The introduction of the standard 16 percent VAT on fuels, which has been pushed back several times previously, is part of the latest attempts to raise state revenues.

President Uhuru Kenyatta was in 2018 forced to halve VAT on fuel to eight per cent after the introduction of the full tax prompted protests from motorists and business lobbies.

The proposed law by Homabay Women representative Gladys Wanga also seeks to provide fr maximum margins for oil marketers at Sh9 per litre of super petrol, regular petrol, diesel and kerosene.  

The government is also planning to do away with the fuel subsidy programme that has been cushioning consumers from high prices and volatilities in the global market. 

"It is a give and takes scenario that is not likely to rescue Wanjiku from the current situation. The matter is worsened by the upcoming general election and ongoing global supply chain disruption. This is not going to be a Wanjiku budget,'' Dennis Musumba, a development economist told the Star. 

Last week, Ernst & Young said that it sees the exchequer not tampering with the existing tax regime. It in fact foresaw Yatani coming up with more measures to bring informal businesses into the tax bracket in a bid to meet its domestic tax wants. 

The country is looking at a budget deficit of Sh846 billion in the financial year starting July, a move likely to push the current debt to slightly above Sh9 trillion.

Yatani is, however, expected to propose the tax limit be measured as a percentage of GDP as opposed to an absolute figure. The government had earlier proposed to push the borrowing limit to Sh12 trillion.

Traditionally, education, ICT and infrastructure, security and energy are likely to be allocated lion's share of the budget. 

Education will get Sh521 billion, energy, infrastructure and ICT (Sh357.7 billion), public administration and international development (Sh383.3 billion) and national security (Sh180.9 billion).

The national government will take up Sh2.04 trillion with the executive allocation projected at Sh1.98 trillion.

Allocation to counties is expected to remain at Sh370 billion.

WATCH: The latest videos from the Star