National Treasury CS Henry Rotich and his PS Dr.Kamau Thugge during their meeting with Senate Assembly Finance and Budget Committee on the proposed amendment on County allocation of revenue at County hall, Nairobi 07/03/18[Boniface Okendo,Standard] By Dominic Omondi
Kenyans should brace themselves for higher taxes after the Government caved in to the International Monetary Fund’s (IMF) demands.
Treasury agreed to tough conditions spelt out by IMF, including the repeal of some tax exemptions enjoyed by key sectors of the economy.
ALSO READ: Conditions to Kenya as IMF extends ‘rainy day’ loan
It made the commitment to the IMF in a letter of intent that spells out a raft of measures that are likely to eat into consumers’ pockets. One of the key conditions accepted by the Government is a removal of some tax exemptions that will weigh on some sectors of the economy.
The sectors to be hit include agriculture, manufacturing, education, health, tourism, finance, social work, and energy. A tax haven for milk, maize flour, and sugar will come to an end in the next financial year. Petrol products Treasury has indicated that petroleum products, which had been exempted from consumption tax, will attract 16 per cent VAT beginning September in a move aimed at complying with a deal Kenya made with IMF in 2015. Avoid fake news! Subscribe to the Standard SMS service and receive factual, verified breaking news as it happens.
Text the word 'NEWS' to 22840 Treasury expects to get an extra Sh17 billion from taxes on petroleum products. According to the World Bank, there are about 30 tax-exempt income categories accounting for 88 per cent of total exemptions. The Government hopes to squeeze an extra Sh40 billion in taxes from these sectors.
This is likely to have a ripple effect by pushing up the cost of goods and services currently enjoyed at a discounted level. Besides removal of tax exemptions, the National Treasury and the Central Bank of Kenya (CBK) have promised IMF to either remove or modify interest rate caps and delay the implementation of some development projects as a condition to access IMF’s Sh150 billion precautionary loan known as the standby arrangement (SBA).
ALSO READ: Parliament seek extension of VAT on fuel
Kenya has been granted a six-month extension on the standby arrangement to work on the IMF-driven proposals and be allowed to access the credit facility should the economy suffer an external shock.
National Treasury Cabinet Secretary Henry Rotich and Central Bank Governor Patrick Njoroge, in the letter of intent to IMF's president, Christine Lagarde, said the proposals would be included in the upcoming budget to be tabled in Parliament in June.
Tough conditions The two assured Ms Lagarde that they would meet all IMF's tough conditions, including cutting fiscal deficit - which occurs when a government's total expenditures exceed the revenue that it generates - by almost half by the end of financial year 2018/19. "In light of the revenue shortfalls so far this year, to achieve the fiscal deficit target for 2017/18, we have introduced specific revenue administration measures that are under implementation, and identified specific spending cuts," said Mr Rotich and Dr Njoroge.
For the current financial year ending June, the two policymakers promised to delay the implementation of what they described as 'lower-priority' investments, a situation that will certainly stem the flow of cash to thousands of Kenyans. However, for the next financial year starting July, they promised to increase tax collections. ALSO READ: IMF approves Kenya's request to extend stand-by agreement by 6 months "To achieve the fiscal deficit for 2018/19, we commit to introduce, through the Finance Bill 2018, revenue raising measures, including removal of some tax exemptions and improvements in tax administration," they said.
IMF wants Kenya to shift from the current position where a huge chunk of its budget is financed through borrowed cash. The global lender expressed fears that should the Government not tame its appetite for debt, it would soon rise to about 60 per cent of its gross domestic product.
The Government’s appetite for borrowed cash has seen public debt swell to Sh4.6 trillion, raising a storm in various circles. The shift in policy will see the Kenya Revenue Authority (KRA) aggressively move to raid the pockets of Kenyans who are just recovering from tough economic times occasioned by a crippling drought, reduced credit, and prolonged electioneering period.
Long overdue Experts, however, think the overhaul of most of the tax exemptions was long overdue, with some of them having outlived their usefulness. Kwame Owino, the CEO of the Institute of Economic Affairs, said studies had shown that exemptions given to attract investments, such as in special economic zone, do not affect investments anymore. Philip Muema, a tax expert and founder of business advisory Nexus, argued that some tax exemptions have been abused in the past, so the Government would be creating a level ground where everyone would pay tax. He explained that while the proposals would hurt consumers in the short term, in the end Kenyans would benefit as there would be more money in circulation as the Government would stay away from borrowing locally and crowding out the private sector.
ALSO READ: Beauty wins against taxman on new levies
Postpone implementation However, he proposed that the Government postpone implementation of the 16 per cent VAT on petroleum as it would only add to the cost of living. “The Government should postpone it (tax on petrol) to cushion Kenyans against some additions to cost of living,” said Muema. Treasury has indicated that it will overhaul the Income Tax Act to address taxes charged on employees’ salary through Pay As You Earn).
“The Government will implement various measures to boost revenue mobilisation. These measures will include complete overhaul of the current Income Tax Act, strengthening tax administration, and expansion of the tax base,” said Treasury in the Draft 2018 Budget Policy Statement. The Government intends to increase income tax by over Sh100 billion in the financial year 2018/19. Kenya seems to have taken the cue to get rid of tax exemptions from yet another Bretton Woods institution - the World Bank.
In its December 2017 Kenya Economic Update, the World Bank called for the removal of tax exemptions, joining IMF in piling pressure on Kenya to undertake the much-delayed fiscal consolidation - or painful policies undertaken by governments to reduce their budget deficits and accumulation of debt stock.
ALSO READ: Cheap bank loans set to end soon
Exemption regimes "Any rationalisation of the corporate income tax (CIT) exemptions regime, therefore, should have a focus on these sectors, to the extent that the specific tax exemptions being enjoyed in these sub sectors are no longer a priority within the national development agenda," said the World Bank's report.
CIT is levied on income - profit - made by legal entities. The deal has alarmed the Consumer Federation of Kenya, which has warned that the Treasury proposals would hurt the ordinary mwananchi, particularly if it touched VAT. "If they amend figures on VAT, then this is going to raise the cost of living on basic commodities such as food," said Stephen Mutoro, the head of lobby group.
Taxes to increase after
GOK agrees to IMF demands
By Dominic Omondi | Published Mon, March 19th 2018 at 00:00, Updated
March 19th 2018 at 13:53 GMT +3
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National Treasury CS Henry Rotich and his PS Dr.Kamau Thugge during
their meeting with Senate Assembly Finance and Budget Committee on the
proposed amendment on County allocation of revenue at County hall,
Nairobi 07/03/18[Boniface Okendo,Standard]
Kenyans should brace themselves for higher taxes after the Government
caved in to the International Monetary Fund’s (IMF) demands.
Treasury agreed to tough conditions spelt out by IMF, including the
repeal of some tax exemptions enjoyed by key sectors of the economy.
ALSO READ: Conditions to Kenya as IMF extends ‘rainy day’ loan
It made the commitment to the IMF in a letter of intent that spells out a
raft of measures that are likely to eat into consumers’ pockets.
One of the key conditions accepted by the Government is a removal of
some tax exemptions that will weigh on some sectors of the economy. The
sectors to be hit include agriculture, manufacturing, education, health,
tourism, finance, social work, and energy. A tax haven for milk, maize
flour, and sugar will come to an end in the next financial year.
Petrol products
Treasury has indicated that petroleum products, which had been exempted
from consumption tax, will attract 16 per cent VAT beginning September
in a move aimed at complying with a deal Kenya made with IMF in 2015.
Avoid fake news! Subscribe to the Standard SMS service and receive
factual, verified breaking news as it happens. Text the word 'NEWS' to
22840
Treasury expects to get an extra Sh17 billion from taxes on petroleum
products.
According to the World Bank, there are about 30 tax-exempt income
categories accounting for 88 per cent of total exemptions.
The Government hopes to squeeze an extra Sh40 billion in taxes from
these sectors. This is likely to have a ripple effect by pushing up the
cost of goods and services currently enjoyed at a discounted level.
Besides removal of tax exemptions, the National Treasury and the Central
Bank of Kenya (CBK) have promised IMF to either remove or modify
interest rate caps and delay the implementation of some development
projects as a condition to access IMF’s Sh150 billion precautionary loan
known as the standby arrangement (SBA).
ALSO READ: Parliament seek extension of VAT on fuel
Kenya has been granted a six-month extension on the standby arrangement
to work on the IMF-driven proposals and be allowed to access the credit
facility should the economy suffer an external shock.
National Treasury Cabinet Secretary Henry Rotich and Central Bank
Governor Patrick Njoroge, in the letter of intent to IMF's president,
Christine Lagarde, said the proposals would be included in the upcoming
budget to be tabled in Parliament in June.
Tough conditions
The two assured Ms Lagarde that they would meet all IMF's tough
conditions, including cutting fiscal deficit - which occurs when a
government's total expenditures exceed the revenue that it generates -
by almost half by the end of financial year 2018/19.
"In light of the revenue shortfalls so far this year, to achieve the
fiscal deficit target for 2017/18, we have introduced specific revenue
administration measures that are under implementation, and identified
specific spending cuts," said Mr Rotich and Dr Njoroge.
For the current financial year ending June, the two policymakers
promised to delay the implementation of what they described as
'lower-priority' investments, a situation that will certainly stem the
flow of cash to thousands of Kenyans.
However, for the next financial year starting July, they promised to
increase tax collections.
ALSO READ: IMF approves Kenya's request to extend stand-by agreement by 6
months
"To achieve the fiscal deficit for 2018/19, we commit to introduce,
through the Finance Bill 2018, revenue raising measures, including
removal of some tax exemptions and improvements in tax administration,"
they said.
IMF wants Kenya to shift from the current position where a huge chunk of
its budget is financed through borrowed cash. The global lender
expressed fears that should the Government not tame its appetite for
debt, it would soon rise to about 60 per cent of its gross domestic
product.
The Government’s appetite for borrowed cash has seen public debt swell
to Sh4.6 trillion, raising a storm in various circles.
The shift in policy will see the Kenya Revenue Authority (KRA)
aggressively move to raid the pockets of Kenyans who are just recovering
from tough economic times occasioned by a crippling drought, reduced
credit, and prolonged electioneering period.
Long overdue
Experts, however, think the overhaul of most of the tax exemptions was
long overdue, with some of them having outlived their usefulness.
Kwame Owino, the CEO of the Institute of Economic Affairs, said studies
had shown that exemptions given to attract investments, such as in
special economic zone, do not affect investments anymore.
Philip Muema, a tax expert and founder of business advisory Nexus,
argued that some tax exemptions have been abused in the past, so the
Government would be creating a level ground where everyone would pay
tax.
He explained that while the proposals would hurt consumers in the short
term, in the end Kenyans would benefit as there would be more money in
circulation as the Government would stay away from borrowing locally and
crowding out the private sector.
ALSO READ: Beauty wins against taxman on new levies
Postpone implementation
However, he proposed that the Government postpone implementation of the
16 per cent VAT on petroleum as it would only add to the cost of living.
“The Government should postpone it (tax on petrol) to cushion Kenyans
against some additions to cost of living,” said Muema.
Treasury has indicated that it will overhaul the Income Tax Act to
address taxes charged on employees’ salary through Pay As You Earn).
“The Government will implement various measures to boost revenue
mobilisation. These measures will include complete overhaul of the
current Income Tax Act, strengthening tax administration, and expansion
of the tax base,” said Treasury in the Draft 2018 Budget Policy
Statement.
The Government intends to increase income tax by over Sh100 billion in
the financial year 2018/19.
Kenya seems to have taken the cue to get rid of tax exemptions from yet
another Bretton Woods institution - the World Bank.
In its December 2017 Kenya Economic Update, the World Bank called for
the removal of tax exemptions, joining IMF in piling pressure on Kenya
to undertake the much-delayed fiscal consolidation - or painful policies
undertaken by governments to reduce their budget deficits and
accumulation of debt stock.
ALSO READ: Cheap bank loans set to end soon
Exemption regimes
"Any rationalisation of the corporate income tax (CIT) exemptions
regime, therefore, should have a focus on these sectors, to the extent
that the specific tax exemptions being enjoyed in these sub sectors are
no longer a priority within the national development agenda," said the
World Bank's report. CIT is levied on income - profit - made by legal
entities.
The deal has alarmed the Consumer Federation of Kenya, which has warned
that the Treasury proposals would hurt the ordinary mwananchi,
particularly if it touched VAT.
"If they amend figures on VAT, then this is going to raise the cost of
living on basic commodities such as food," said Stephen Mutoro, the head
of lobby group.
Read more at: https://www.standardmedia.co.ke/business/article/2001273658/tighten-your-belt-this-is-why-the-cost-of-living-will-go-up-in-july
Read more at: https://www.standardmedia.co.ke/business/article/2001273658/tighten-your-belt-this-is-why-the-cost-of-living-will-go-up-in-july
National Treasury CS Henry Rotich and his PS Dr.Kamau Thugge during their meeting with Senate Assembly Finance and Budget Committee on the proposed amendment on County allocation of revenue at County hall, Nairobi 07/03/18[Boniface Okendo,Standard] By Dominic Omondi
Kenyans should brace themselves for higher taxes after the Government caved in to the International Monetary Fund’s (IMF) demands.
Treasury agreed to tough conditions spelt out by IMF, including the repeal of some tax exemptions enjoyed by key sectors of the economy.
ALSO READ: Conditions to Kenya as IMF extends ‘rainy day’ loan
It made the commitment to the IMF in a letter of intent that spells out a raft of measures that are likely to eat into consumers’ pockets. One of the key conditions accepted by the Government is a removal of some tax exemptions that will weigh on some sectors of the economy.
The sectors to be hit include agriculture, manufacturing, education, health, tourism, finance, social work, and energy. A tax haven for milk, maize flour, and sugar will come to an end in the next financial year. Petrol products Treasury has indicated that petroleum products, which had been exempted from consumption tax, will attract 16 per cent VAT beginning September in a move aimed at complying with a deal Kenya made with IMF in 2015. Avoid fake news! Subscribe to the Standard SMS service and receive factual, verified breaking news as it happens.
Text the word 'NEWS' to 22840 Treasury expects to get an extra Sh17 billion from taxes on petroleum products. According to the World Bank, there are about 30 tax-exempt income categories accounting for 88 per cent of total exemptions. The Government hopes to squeeze an extra Sh40 billion in taxes from these sectors.
This is likely to have a ripple effect by pushing up the cost of goods and services currently enjoyed at a discounted level. Besides removal of tax exemptions, the National Treasury and the Central Bank of Kenya (CBK) have promised IMF to either remove or modify interest rate caps and delay the implementation of some development projects as a condition to access IMF’s Sh150 billion precautionary loan known as the standby arrangement (SBA).
ALSO READ: Parliament seek extension of VAT on fuel
Kenya has been granted a six-month extension on the standby arrangement to work on the IMF-driven proposals and be allowed to access the credit facility should the economy suffer an external shock.
National Treasury Cabinet Secretary Henry Rotich and Central Bank Governor Patrick Njoroge, in the letter of intent to IMF's president, Christine Lagarde, said the proposals would be included in the upcoming budget to be tabled in Parliament in June.
Tough conditions The two assured Ms Lagarde that they would meet all IMF's tough conditions, including cutting fiscal deficit - which occurs when a government's total expenditures exceed the revenue that it generates - by almost half by the end of financial year 2018/19. "In light of the revenue shortfalls so far this year, to achieve the fiscal deficit target for 2017/18, we have introduced specific revenue administration measures that are under implementation, and identified specific spending cuts," said Mr Rotich and Dr Njoroge.
For the current financial year ending June, the two policymakers promised to delay the implementation of what they described as 'lower-priority' investments, a situation that will certainly stem the flow of cash to thousands of Kenyans. However, for the next financial year starting July, they promised to increase tax collections. ALSO READ: IMF approves Kenya's request to extend stand-by agreement by 6 months "To achieve the fiscal deficit for 2018/19, we commit to introduce, through the Finance Bill 2018, revenue raising measures, including removal of some tax exemptions and improvements in tax administration," they said.
IMF wants Kenya to shift from the current position where a huge chunk of its budget is financed through borrowed cash. The global lender expressed fears that should the Government not tame its appetite for debt, it would soon rise to about 60 per cent of its gross domestic product.
The Government’s appetite for borrowed cash has seen public debt swell to Sh4.6 trillion, raising a storm in various circles. The shift in policy will see the Kenya Revenue Authority (KRA) aggressively move to raid the pockets of Kenyans who are just recovering from tough economic times occasioned by a crippling drought, reduced credit, and prolonged electioneering period.
Long overdue Experts, however, think the overhaul of most of the tax exemptions was long overdue, with some of them having outlived their usefulness. Kwame Owino, the CEO of the Institute of Economic Affairs, said studies had shown that exemptions given to attract investments, such as in special economic zone, do not affect investments anymore. Philip Muema, a tax expert and founder of business advisory Nexus, argued that some tax exemptions have been abused in the past, so the Government would be creating a level ground where everyone would pay tax. He explained that while the proposals would hurt consumers in the short term, in the end Kenyans would benefit as there would be more money in circulation as the Government would stay away from borrowing locally and crowding out the private sector.
ALSO READ: Beauty wins against taxman on new levies
Postpone implementation However, he proposed that the Government postpone implementation of the 16 per cent VAT on petroleum as it would only add to the cost of living. “The Government should postpone it (tax on petrol) to cushion Kenyans against some additions to cost of living,” said Muema. Treasury has indicated that it will overhaul the Income Tax Act to address taxes charged on employees’ salary through Pay As You Earn).
“The Government will implement various measures to boost revenue mobilisation. These measures will include complete overhaul of the current Income Tax Act, strengthening tax administration, and expansion of the tax base,” said Treasury in the Draft 2018 Budget Policy Statement. The Government intends to increase income tax by over Sh100 billion in the financial year 2018/19. Kenya seems to have taken the cue to get rid of tax exemptions from yet another Bretton Woods institution - the World Bank.
In its December 2017 Kenya Economic Update, the World Bank called for the removal of tax exemptions, joining IMF in piling pressure on Kenya to undertake the much-delayed fiscal consolidation - or painful policies undertaken by governments to reduce their budget deficits and accumulation of debt stock.
ALSO READ: Cheap bank loans set to end soon
Exemption regimes "Any rationalisation of the corporate income tax (CIT) exemptions regime, therefore, should have a focus on these sectors, to the extent that the specific tax exemptions being enjoyed in these sub sectors are no longer a priority within the national development agenda," said the World Bank's report.
CIT is levied on income - profit - made by legal entities. The deal has alarmed the Consumer Federation of Kenya, which has warned that the Treasury proposals would hurt the ordinary mwananchi, particularly if it touched VAT. "If they amend figures on VAT, then this is going to raise the cost of living on basic commodities such as food," said Stephen Mutoro, the head of lobby group.
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