Consolidating Gains for Prosperous Kenya

BY KEVIN GIKONYO The contents of the 2016/2017 budget read on June 8 were not a surprise to many, owing to a new schedule mandating the CS Treasury to introduce the budgetary estimates in April before presenting the same to Parliament for debate. He reiterated he was guided by the need to increase the consumable spending in the middle and low-income class in order to spur growth, while in the same breadth widening the tax base. He enumerated that for the country to prosper, it must be able to;

• Improve the business environment in order to lower the cost of doing business, improve competitiveness, and attract more investment for growth, employment generation, and poverty reduction;
• Safeguard macroeconomic stability;
• Invest in security;
• Improve infrastructure (roads, railway, ports, energy and water) to encourage growth of competitive industries;
• Undertake various measures to drive agricultural and industrial transformation so as to ensure food security and lower food prices, increase quality and diversification of exports, accelerate inclusive growth, create jobs and reduce poverty;
• Prioritise investment in quality and accessible health care services as well as quality and relevant education;
• Ensure adequate support for the most vulnerable in our societies;
• Support devolution through funding and working closely with the county governments to build appropriate public financial management capacity to help them to better deliver services to Wananchi; and
• Implement economic, financial and other reforms to boost our productivity and competitiveness.

The 2016/17 budget was themed; Consolidating Gains for a Prosperous Kenya. There were losers and winners in a bid to balance the tax income versus expenditure. An estimated expenditure of Sh2.264 trillion which is 30% of the country’s GDP was estimated in the current fiscal year up from Sh1.842 trillion in 2015/16 proposals. The current budgeted revenue collection is approximately Sh1.5006 trillion, up from Sh1.295 last year, thus creating a budget deficit of close to Sh700 billion. This deficit as read out by the CS, will be cushioned by both external and internal lenders, with the Government intending to borrow nearly Sh413 Billion (5% of GDP) externally and the residual through local treasury bills and bonds in the money markets. The most conspicuous tax burden was on the motoring class. This class will shoulder the biggest tax load in order to fuel the ever-needy infrastructure through an increase of Sh6 on petrol and diesel, in order to fill the road maintenance basket. Kenya consumes an estimated 84,000 barrels per day, approximately 10 million litters. This will ensure the exchequer nets an additional Sh60 million per day according to 2013 fuel consumption estimates by bymap.org. Rotich amended the car import tax scheme as it was found to be biased on cushioning the luxurious and “high-end” vehicle buyers, by taxing a flat fee of Sh200, 000 for those above three years. This has been revised to a more progressive 20% rate on value in the 2016/17 budget, hence easing the burden on low valued vehicle importers. Those in the cosmetics and beauty business were not spared from the scratch with a 10% tax increase, to create a storm in the ever gender equality debate, as the perpetual “sin bin” taxes (cigarettes, tobacco and alcohol) remained the same. The industry estimated to be worth Sh6Billion was lifted form the tax heaven’s bracket, after a 6 year reprieve by the then Finance Minister Hon Uhuru Kenyatta, who was cheered by women in the house after lauding that “beautiful women are the face of a healthy society”. Manufacturers of aluminium cans, steel and iron have been given a “panel beating” to revamp their industry from a backdrop of unfair competition through cheap imports from the east-wide markets. Those importing the latter will have to bear an additional specific duty rate of $200 per metric tonne as from July 1st when the bill becomes law once Parliament consents. Importers of aluminium cans will pay an additional 15% tax from the current 10%, while those importing aluminium plates and sheets will enjoy a zero rate in the duty remission scheme, down from a 25% tax in 2015/16 fiscal year, in order to promote the local can manufacturers. Drug and animal feeds manufacturers were also exempted from paying VAT on special coolants and the later was additionally exempted from paying VAT on all the raw materials they use. More so, the EPZ garments and foot ware were exempted from VAT, as the taxman endeavoured Kenyans afford smart and descent shoes and increase the bottom line for these special zones. To improve the tourism sector, the CS increased the air passenger service charge from the current $40 to $50 and from Sh500 to Sh600 for all external and internal travels respectively, so that the residual income realised from this increase, will be used to fund promotions, through a special fund to be formed jointly by the ministry of tourism and the national treasury .He jolted the sector further, by exempting the tour agents from paying their VAT commissions, as well as VAT payments on entry fees at the various National parks across the country. In addition, the ministry was allocated Sh4.5 billion to bolster its magical Kenya campaigns in order to improve its 25% drop to contribute a worrying Sh84.6 billion, into the 2015 economy. The real estate, which has been one of the most vibrant sectors in succession, received its fair share of adjustments. In trying to solve the perennial housing deficit, developers were promised to enjoy a tax reprieve of 10% on corporate tax as long as they prove to have completed low cost housing of more than 1,000 units per year. This was followed by a pinch on the landlord’s rental income that has always been elusive to the taxman only realising a paltry Sh11billion in the just concluded financial year. A directive was given to KRA to employ withholding tax agents to ensure a minimum collection of Sh12, 000 per month or a ten percent thereof, whichever is higher is remitted, in a bid to increase the tax base. The agricultural sector was rained on with goodies from the CS, where the sugar cane and tea farmer’s ad-valorem levies were scrapped. In order to improve yield and output for farmers, the CS set aside Sh4.9 billion to subsidize fertilizer and seeds and also allocated Sh1.6 billion for strategic food reserves. A total of Sh8.4 billion was ear-marked for acquisition of the Offshore Patrol Vessel for the fisheries sub sector; the modernization of the Kenya Meat Commission; the revival of the pyrethrum sector; Livestock & Crop Insurance Scheme; Livestock value chain support; and the mechanization of Agriculture. An addition Sh1 billion was allocated for crop diversification programme in the Meru region for the Miraa farmers and Sh2.4 billion for coffee debt waiver and STABEX (A cooperative fund established to meet short term financial needs of coffee societies and farmers in form of farm Input loans (FILS) to enable them access farm inputs). The CS singled out the 100,000 acres Galana-Kulalu irrigation and allocated Sh20.8Billion towards all countrywide similar projects. Financial sector did not miss from the glare of the Treasury head that meted a wide range of reforms. The insurance sector will now be able to earn more from premiums on imported goods. The proposal to have all import insurance administered by local firms will be good news for their growth. However, the claims settlement period was reduced from the mandated 90days to 30days and would thus cause a capex strain on their service delivery resource. In light of the recent bank executive’s malpractice, the minister proposed hefty penalties to rogue bankers with an increase of the maximum fine to Sh20 million up from Sh5million amongst other daily violations fines to be apportioned by the Central Bank. Red tapes on mergers and acquisition is set to reduce and tax reliefs given to acquiring and merging companies in order to promote a stronger financial sector and attract FDIs. The health sector was given a shot in the arm following budgetary allocations to the tune of Sh35.6 billion: Sh4.3 billion was given to support free maternal health care; Sh4.5 billion for lease of medical equipment in counties; Sh8.8 billion to Kenyatta National hospital (KNH); Sh5.8 billion to Moi Teaching and Referral Hospital (MTRH); Sh1.7Billion to Kenya Medical Research Institute (KEMRI); Sh3 billion to the Doctors/Clinical Officers and Nurses internship programme; Sh0.6 billion to National Aids Control Council (NACC); Sh0.9 billion to free primary health care; Sh0.7 billion to mobile clinics; Sh0.5Billion to health subsidy programs for the elderly and disabled; Sh1.3 billion universal health cover and Sh3.5 billion to Kenya Medical Training Institute(KMTC). The education sector was empowered by huge allocations to the Digital Literacy Programme, popularly known as the “Jubilee laptop project” to the tune of Sh13.4Billion. To further support the on-going programmes within the education sector, allocations of Sh32.4 billion for Free Day Secondary Education; Sh14.7 billion for Free Primary Education; Sh4.5 billion for recruitment and promotion of teachers; Sh2.8 billion for the second phase of the Teachers House Allowance; Sh2.5 billion for Technical Training Institutes; Sh0.4 billion for sanitary towels for girls in school; Sh2.6 billion for the School Feeding Programme; Sh3.2 billion for Subsidy to KNEC for examinations fee waiver; Sh9.1 billion for Higher Education Loans Board; and Sh57.8 billion for University Education. Other big takers were the Ministry of Defence, National Intelligence Service and the Department of Interior and Coordination of National government with each taking Sh124.04 billion and Sh140 billion respectively. IEBC also got a lion’s share of Sh19Billion allocation to steer the electoral process before the 2017 General Election. Kenyans were given a few incentives to increase their consumption basket through a tax relief of 10% and an increase of the lowest tax band of Sh10, 165. Exemptions to taxes on bonuses, overtime and retirement benefits to those falling within this exempt tax band, was welcoming news to many households. The over 2 trillion budget had a lot to offer but a tooth comb on a few allocations will draw attention to the “typing error” kind of response. KNH, MTRH and KMTC allocations seem too huge to warrant that kind of spend, albeit the dire need to build several new referral hospitals as promised in the Jubilee Government manifesto and save Kenyans from the long treks in search of the basic health care. The counties have in many occasions left their level 4 and 5 hospitals neglected and instead allocate hefty allowances to other “political bowls” in the name of per-diems. An instance where the MCAs coughed a staggering Sh1.37 billion collective spend from the exchequer, with Bungoma, Busia, Kisumu and Migori County leading the park on average allowance spend per MCA. According to a senior county official, Counties have perfected the looting from the Facilities Improvement Fund (FIF) normally paid by patients ranging at Sh100 per individual but summing up to a tune of hundreds of millions in just one level 5 hospital. The Galana-Kulalu project that has been allocated over Sh15 billion, is an eyesore to the much awaited food security and has become a “cash cow” to siphon hard earned public money. Lack of allocations to build the Ultra-modern sports stadium still lingers in the eyes of youthful sports men and women, with hopes of endeavouring to become the next Victor Wanyama or David Rudisha. The fisheries Sh8.4 billion allocation to an Offshore Patrol Vessel is also raising more questions than answers; not forgetting the foreign-awarded ferry acquisition tenders, yet our very own vessels manufacturers can do the same if not better for less. A lot needs to be done on the audit front to bypass the detailed and often skewed accountability in the National and County governments spending. The introduction of Audit committees in public institutions is welcoming but still viewed with a lot of pessimism; questions linger on whether they can deliver on their clarion mandate.Kenya is already one of the most taxed countries in the world and usually attracts unnecessary spending that even most western countries cannot binge. The backtracking on use of fuel guzzling vehicles in government and parastatals circles, from a past declaration by the then Minister for Finance Hon Uhuru Kenyatta in economizing public spending, is still a public irony, bringing home the adage that power corrupts and absolute power corrupts absolutely.

Writer is financial consultant and director at Spine Global Solutions