Poor families win big in Budget

National Treasury Cabinet Secretary Henry Rotich reads the 2017-2018 Budget speech at Parliament Buildings in Nairobi on March 30, 2017. PHOTO | JEFF ANGOTE | NATION MEDIA GROUP 

In Summary

• National Treasury Cabinet Secretary Henry Rotich struck a careful balance not to hurt the wider public and made proposals to boost consumption.
• The proposals, typical of an election-year Budget, will be music to the ears of the electorate already pushed to the wall by high inflation, which stood at 9.04 last month, and biting drought.

By EDWIN OKOTH
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Thursday’s is a “win-for-all” Budget. It is designed to spur consumption, woo investors and promote local goods.

National Treasury Cabinet Secretary (CS) Henry Rotich struck a careful balance not to hurt the wider public and made proposals to boost consumption.

The proposals, typical of an election-year Budget, will be music to the ears of the electorate already pushed to the wall by high inflation, which stood at 9.04 last month, and biting drought.

Mr Rotich waived import taxes on maize for the next four months and removed value added tax (VAT) on bread and maize flour. This will reduce the price of the staple by at least 16 per cent, if businesses pass on the tax break to consumers.

“Manufacturers, wholesalers, and retailers who sell such goods will be expected to reduce the prices of these basic commodities, failure to which, I will reverse the policy,” Mr Rotich said.

This will bring the price of maize flour down from Sh120 to Sh100 or less for some brands. A 400 gram loaf of bread will be sold at around Sh42, down from about Sh50.

Struggling families will also welcome the minister’s decision to exempt those earning less than Sh13,486 from income tax. Their bonuses, overtime and retirement benefits will also be tax exempt.

The proposals were also designed to attract more Foreign Direct Investment to expand the economy and increase jobs.

AMMEND LAW

The CS proposed to amend the Income Tax Act to exempt dividends payable to non-residents by enterprises in special economic zones from taxation. This will attract foreign investors.

Withholding tax on interest payable to non-residents by special economic zones Enterprises will fall from 15 to 5 per cent.

All foreign companies participating in international tenders will be expected to source at least 40 per cent of their supplies from Kenyan citizen contractors, according to the proposals meant to promote local businesses.

Local pesticide manufacturers may also get a VAT relief on imported inputs. Similarly, VAT exemption for locally assembled tourist vehicles is in the offing in a bid to promote locally assembled cars and make them cheaper for tour companies.

Corporate tax for new assemblers may also fall from 30 to 15 per cent for the first five years in a measure set to enhance the return for new investors and increase jobs.

Tax experts describe the proposals as smart for a government facing a competitive election in four months.

Audit and tax advisory firm Grant Thorton Kenya’s Director Samuel Mwaura said the proposals are all aimed at increasing consumption and creating more jobs from which government will collect more tax.

“When goods become more affordable, the firms make more profit so we have both corporate tax and VAT increasing. What KRA must do is to improve compliance levels to yield tax,” Mr Mwaura said.

LOW-PRICE BEER

To increase the drinking of low-price beer and discourage the consumption of illicit brews, which are dangerous and give the government no revenue, Mr Rotich proposed an 80 per cent suspension of excise duty for locally manufactured beer made from locally produced sorghum, millet or cassava or any other produce, excluding barley.

However, noting the increased consumption of high value spirits has increased, he adjusted the tax rate from Sh175 a litre to Sh200 a litre.

Also raided heavily was the betting, lottery, gaming and competition companies, which are by far the biggest losers in the Jubilee administration’s budget for their five year tenure in office.

The National Treasury, in a bid to raise money to finance the Sh2.6 trillion budget, has proposed to raid the betting industry with a heavy 50 per cent tax for all categories.

Mr Rotich said betting and gaming are inadequately regulated and their expansion is beginning to have negative social effects on the youth.

The industry is taxed at 7.5 per cent for betting, five per cent for lottery and another 12 per cent of gaming revenue.

In the new proposals, a uniform tax rate of 50 per cent for all categories will apply with the proceeds to be chambered to newly created National Sports, Culture and Arts Fund to support development of sports, culture and arts in Kenya.