By JAMES ANYANZWA
In Summary
- The other EAC member states found it difficult to deviate from the budget calendar adopted under the EAC tax harmonisation initiative.
- Among the key taxes that businesses are waiting to see what direction the EAC will take are the Common External Tariffs on sensitive products like sugar, wheat, maize, rice, milk as well as textiles and leather.
- Tax experts said disclosing customs-related taxes ahead of its EAC counterparts would be detrimental to intra-EAC trade.
The Kenya budget to be read Thursday March 30, will exclude
taxation measures likely to distort trade in the East African Community
before the other four partners make their proposals in June.
The National Treasury said it would issue
policy measures and steer clear of customs-related taxes after the other
EAC member states found it difficult to deviate from the budget
calendar adopted under the EAC tax harmonisation initiative.
“If you are doing something that changes taxes
you have to announce it together but with policy issues the timing does
not matter,” Geoffrey Mwau, the National Treasury’s director general
in-charge of budget, fiscal and economic affairs told The East African.
Dr Mwau said partner states announcing their
tax proposals separately would lead to business malpractices like
hoarding and smuggling. Kenya, Rwanda, Tanzania and Uganda agreed a
decade ago to be reading their budgets on the same day. Burundi,
however, still reads its budget in December because its fiscal year
follows the calendar year; the others from July to June.
Among the key taxes that businesses are
waiting to see what direction the EAC will take are the Common External
Tariffs on sensitive products like sugar, wheat, maize, rice, milk as
well as textiles and leather.
Kenya’s fiscal proposals for the 2017/18
financial year will be read almost three months ahead of schedule to fit
in an electoral cycle stipulated in the Constitution that requires
Parliament to be dissolved two months before the General Election.
The election will be held on August 8, meaning
legislators must pass the Finance and Appropriation Bill before going
on recess, unlocking spending for public institutions including the
Independent Electoral and Boundaries Commission.
Tax experts said disclosing customs-related taxes ahead of its EAC counterparts would be detrimental to intra-EAC trade.
“This must be in
respect of Customs. The Cabinet Secretary may not announce rate changes
but only announce policy changes in this area. One point is that we are
expecting a new Income Tax Act so it is possible that there will be no
measures announced on income tax,” saidNikhil Hira,a partner at tax and financial advisory firm Deloitte ConsultingEast Africa.
Customs duties include import or export duties
and other charges levied on goods by virtue of their importation or
exportation within the EAC partner states as opposed to domestic duties
and taxes such as sales, turnover or consumption taxes.
Kenya’s budget comes on the backdrop of
surging inflation, a ballooning public sector wage bill, deteriorating
business environment and rising political temperatures that have
prompted investors to halt their plans.
Tax experts said that the government faces an
arduous task of collecting Ksh1.7 trillion ($17billion) of ordinary
revenues to finance part of the Ksh2.6 trillion($26 billion) budget in
an environment where economic activities have fallen to the bare
minimum and corporates are restructuring their businesses to survive.
“The major challenges facing the
Treasury must be the high recurrent government expenditure and the fact
that revenue collections are not keeping pace,” said Mr Hira.
According to Asif Chaudhry, a partner at the
consultant firm PKF Kenya companies are struggling to sustain their
businesses in Kenya.
“It is increasingly becoming difficult to do
business in Kenya because of the level of corruption, the nature of the
taxation regime and the complicated process of acquiring business
permits. This is worrying,” said Mr Chaudhry.
Players in the horticulture sector expect the
double taxation syndrome in the EAC region which has continued to
undermine their businesses to be addressed.
“We are hopeful that double and multiplicity of taxes such as
horticulture cess and affluent discharge will be rescinded,” chief
executive, Kenya Flower Council (KFC), Jane Ngige.
James Mulili, senior manager, PKF Kenya said: "None of the EAC countries have double taxation agreement with each other.”
This year Kenya has increased its allocations to recurrent
spending to 67.7 per cent of its Ksh2.6 trillion ($26 billion) budget
from 62.4 per cent in the 2016/2017 budget in order to accommodate
higher wages and allowances for civil servants. Half of the country’s
revenues are consumed by salaries and allowances of public officials.
The country’s public sector wage bill stands at Ksh627 billion ($6.27
billion) annually.
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