Kenya’s National Treasury Cabinet Secretary Henry Rotich will on June 8 outline taxation measures to fund a Ksh2.07 trillion ($20.7 billion) budget, amid declining revenue collection and pressing expenditure needs ahead of the country’s general election next year.
The Treasury is wary of the lacklustre performance of the country’s revenues with tax exemptions granted to donor funded projects wiping out an estimated Ksh3.24 billion ($32.4 million) in nine months.
“Part of the reason is due to the exemptions granted to donor aid projects in the Finance Act 2015. The standard gauge railway is tax exempt,” Mr Rotich told The EastAfrican.
The Kenya Revenue Authority reported that collections on import value added tax for the nine months to March fell by 1.7 per cent to Ksh98.57 billion ($985.7 million) from Ks00.32 billion ($1 billion) in the same period the previous financial year.
Tax experts said the government must either raise taxes or borrow to compensate for the revenue shortfall that is widening the budget deficit.
“I really think the government needs to look seriously at reducing expenditure,” said Nikhil Hira, a tax expert at Deloitte & Touche East Africa Ltd.
According to Mr Hira, a drop in the international prices of crude also contributed to the decline in revenues associated with import VAT.
Kenya is hoping to collect about Ks.51 trillion ($15.1 billion) in revenues, during the 2016/2017 fiscal year to fund its ballooning budget.
The revenue collection target for 2015/2016 fiscal year was set at Ks.31 trillion ($13.1 billion).
Of the Ksh2.07 trillion ($20.7 billion) budget some Ks.09 trillion ($10.9 billion) will be used to finance recurrent activities, including payment of public wages.
The fiscal deficit (including grants) of Ksh500.5 billion ($50 billion) will be financed by net external financing of Ksh310.7 billion ($3.1 billion) and net domestic borrowing of Ks89.8 billion ($1.89 billion).
Rotich will be reading his budget statement in the face of a growing number of threats to the country’s economic growth prospects, including widespread corruption in the public sector and rising political temperatures.
Top on the agenda of his public address will national security, food security, jobs cost of doing business and the tourism subsector.
Kenya is working towards enhancing investments in security systems following a series of attacks by terrorists.
These include measures to strengthen coordination among security agencies, modernisation of security equipment, enhancement of security operations and investigations and building professional capacity of the police force.
In the 2015/2016 Budget Kenya increased allocation to the military and the police to $2.28 billion from an estimated $2 billion in the 2014/2015 fiscal year.
Increased investment in agriculture and infrastructure such as road network, rail, energy and water supplies are also key priority areas.
Other major projects include the Northern Corridor Transport Improvement Project (NCTIP), decongestion of cities and urban areas, improvement of roads in cities and urban areas, rehabilitation of access roads and the Lamu Port and Southern Sudan-Ethiopia Transport (LAPSSET) Corridor Project at Lamu.
The government also announced plans to generate additional 5,000 MW of power, mainly comprising of renewable geothermal, wind and coal, in partnership with private sector players, by 2017.
The country has identified agriculture as one of the key sectors which could help deliver the ambitious 10 per cent economic growth under Vision 2030.
Currently there are initiatives towards exploiting a one million acre Galana/Kulalu Ranch Irrigation project covering production, harvesting and storage, agro-processing, packaging and distribution and marketing.
The government will also be looking at measures to boost manufacturing activities.
Some key achievements to boost the manufacturing sector include the enactment of the Special Economic Zones (SEZ) Act 2015, identification of 3,000 acres in Mombasa at Dongo Kundu for the development of the first phase of the SEZ, including Free Trade Zone and the construction of the first 30,000 square meters warehouse in Athi River for the textile hub.
Source: The East African