Budget day: Yatani’s budget of pain


Budget day: Yatani’s budget of pain
File Treasury Cabinet Secretary Ukur Yatani. PHOTO| COURTESY

In Summary

  • Contrary to previous budget days which have involved pomp and colour, this year’s budget day is set to be a meek and low key event with the ensuing Covid-19 pandemic taking away part of the thunder.
  • A look into the statutory budget books and the proposed tax bill reveals pain not only to CS Yatani but also Mwananchi.
  • Yatani’s fiscal consolidation plan  has been undone by the pandemic as the country now stares at a widened budget hole which in simple terms points towards more borrowing.

In just a few hours, Treasury Cabinet Secretary Ukur Yatani is expected to walk down the steps of the planning ministry to head into the National Assembly for his first budget presentation.

Contrary to previous budget days which have involved pomp and colour, this year’s budget day is set to be a meek and low key event with the ensuing Covid-19 pandemic taking away part of the thunder.

Moreover and unlike in the past, Treasury has already made the submission of crucial budget books following court orders to follow the budget cycle to the letter including the usually coveted details of the Finance Bill which bares new taxes.

A look into the statutory budget books and the proposed tax bill reveals pain not only to CS Yatani but also Mwananchi.

Fiscal meltdown

Yatani’s fiscal consolidation plan which sort to match up government expenditures to exchequer revenues has been undone by the pandemic as the country now stares at a widened budget hole which in simple terms points towards more borrowing.

The resulting turmoil has already seen the Treasury scale back on it total revenue expectations with growth for the year expected at a sub-three percent and the lowest seen since the 2008 post-poll violence.

Treasury expects total revenues to round off to Ksh.1.9 trillion through the next fiscal year to June against adversaries of widespread economic disruptions which have all but assured shallow tax head collections by the tax man.

Genghis Capital Head of Research Churchil Ogutu says Treasury remains head over heels with ambition against the decimation of the tax base which the Parliament Budget Office (PBO) expects take down tax revenue down to a minimum six percent of GDP from 7.1 percent.

“We are yet to see a balanced budget. The Ksh.53.7 billion stimulus for instance is still too low to anchor a rebound in growth. Expenditures will have to come down as revenues sink. One would expect to see subsequent supplementary budgets, he said.

Moreover, debt remains a constant feature and a matter of concern to the populace with debt servicing costs being expected to eat up 55 percent of tax revenues in the financial year commencing July 1.

MTP III versus Covid-19

Sandwiched between two competing needs, the Treasury CS must also balance between two competing needs- a surgery to resuscitate a withering economy and keep the light on to reach goals defined in the third medium term plan (MTP III)

With the big four agenda already gobbling up billions of shillings in tax payers’ funds, experts now reckon the country must stop and reflect on the gains made so far.

This is still as questions linger on the results of years of capital injection into thematic areas.

Health has now emerged as the prerogative as the country wages battle against a health crisis.

“This for me is a health crisis as our economy was already in an economic turmoil. If we had enough investments under the Universal Health Care (UHC) plan, we would have been unshakable by the pandemic,” said CEO to the Institute of Public Finance (IPF) James Muraguri.

“No matter the trade-offs, the government can only open the economy up freely by assuring Kenyans of proper medical attention should one encounter the pandemic.”

Managing Director to the Inter Regional Economic Network (IREN) James Shikwati says the budget cannot succeed without aligning to current trends by international peers.

“We can’t succeed without aligning our policies to the international scene. For instance countries have begun bailing out their airlines as has been the case with Germany’s Lufthansa. Our carrier Kenya Airways cannot therefore be competitive without a similar push.

Higher taxes

The second strain of pain is pain to consumer wallets as Yatani makes another attempt to list tax exemptions on common user items.

Under proposed tax measures- the 2020, Finance Bill, LPG gas is to be the subject of value added tax (VAT) along with clean cooking stoves in a measure which would serve to raise energy costs to Kenyans.

The latest attempt has been forced in part by pressure to expand the tax base and seal revenue leaks with the Treasury projection revenue losses from exemptions to be upwards of Kh.500 billion on any given year.

Having already lost at least Ksh.172 billion from recent amendments contained in the Tax Laws (Amendment) Act which waivered pay as you earn taxes on incomes below Ksh.24,000 and lowered the residential income tax/corporation tax to 25 percent, the Treasury is now seeking to offset its losses.

However, tax experts term the move as a dilemma as the measures on the contrary raise the cost of living.

“Some of the relief you saw given with the left hand are now in line to be taken away more forcefully with the right. The reclassification of products from exempt to taxable goods would be beyond a zero-sum game,” said KPMG Tax and Regulatory Services Partner Caxton Kinuthia.

PwC Partner Titus Mukora meanwhile tells off the dilemma to balance between providing for servicing and staying off a raid on Kenyans already emaciated pockets.

“We always talk of a Mwananchi friendly budget even as government must collect targets to serve the same Kenyans with essential services. The idea is always to accompany the removal of exemptions with lower tax rates to widen the revenue base. The question however remains whether the accompanying lower taxes will lift consumption and yield more collections,” he said.

The International Monetary Fund (IMF) alongside the World Bank has pushed for Kenya to lift its tax base and catapult collections to close the funding deficit.

Other proposed taxes will see loss making firms recruited to the tax base by paying a one percent tax on turnovers while the Treasury has targeted a new digital service tax (DTS) to online businesses including Netflix and Uber who will now surrender 1.5 percent of gross sales as levies to the tax man.

The liquor industry and its customers have once again been the target of the finance bill as Treasury adjusts the scope of excise duties on both beers and spirits.

Monthly payments to pensioners under the National Social Security Fund (NSSF) have been targeted for taxation along with savings made under the home ownership savings plans (HOSPs)

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Story By Kepha Muiruri
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