Treasury Cabinet secretary Henry Rotich’s budget on Thursday
will likely hit households hardest through
higher cost of some basic commodities as he hunts for cash to kick-start implementation of President Uhuru Kenyatta’s ambitious Big Four Agenda.
higher cost of some basic commodities as he hunts for cash to kick-start implementation of President Uhuru Kenyatta’s ambitious Big Four Agenda.
Mr
Rotich has budgeted for Sh3.074 trillion for the financial year
starting next month, Sh454 billion more than the initial spending plan
for the current fiscal period ending this month.
With
headroom for foreign borrowing thinning by the day amid pressure from
the International Monetary Fund (IMF) to halve budget deficit to about
three per cent in four years, the Treasury has signalled a rise in
taxation to grow domestic revenue.
Treasury is looking
to net Sh1.743 trillion in ordinary revenue – taxes and non-tax income
sources such as fees and commissions for various services – Sh253
billion more than the present year.
The Sh1.49 trillion
ordinary revenue target for this year is likely to be missed given that
only Sh1.094 trillion had been raked into the exchequer in 10 months
through April, Sh396 billion short of the estimates with two months
left.
“The performance of the revenue estimates for
2018/19 is contingent on ongoing reforms in tax administration primarily
as a result of modernising VAT systems, reducing zero-rated products
through the Tax Laws (Amendment Bill 2018 (and) tax base expansion
through targeting nil and non-filers,” the Budget and Appropriations
Committee of the National Assembly says in the estimates for 2018-19
financial year tabled last week.
Reclassification of foodstuffs
The
proposed reclassification of some foodstuffs, medicaments and farm
inputs from zero Value Added Tax (VAT) to exemption status is perhaps
what is likely to hit households hardest if the National Assembly passes
Tax Laws (Amendment Bill 2018 without changes.
The
cost for basic commodities such as maize flour, ordinary bread and
cassava flour, wheat or meslin flour, milk and cream without sugar
concentrates and other sweeteners, farm pest control products and
liquefied petroleum gas will likely go up.
Medicaments
such as vaccines for human and veterinary medicines, raw materials to
pharmaceutical manufacturers and supplies to marine fisheries and fish
processors will also be affected by the proposed changes in the VAT Act,
2013.
Services such as transfer of a business as a
going concern by a registered person to another registered person and
supply of natural water – excluding bottled water – will likely also
suffer an upward price pressures.
The shift from
zero-rated VAT to exempt status will mean manufacturers and suppliers
will not claim the 16 per cent VAT refund from the KRA for materials
used in the making of those goods or provision of the services.
They are likely to pass on the increased costs to consumers to maintain their profit margins.
“The
non-deductible input tax is factored in prices charged to final
consumers making such supplies relatively more expensive compared to
zero-rated ones,” analysts at audit firm PKF said in a pre-budget report
last week.
“Reclassification from standard rate of 16
per cent to zero rate yields a bigger price reduction for commodities
compared to reclassification from zero rate to exempt status.”
Mr
Rotich will also be seeking a share of the cash from winnings from
betting, lotteries and gaming activities through a proposed 20 per cent
withholding tax, which firms will deduct from earnings by winners before
paying them.
“We will wait to see how the government
intends to implement this on the backdrop of administrative challenges
previously encountered when it attempted to introduce withholding tax
regime on winnings, especially on non-cash prizes,” PKF tax consultants
said.
Bottled water
Implementation
of Excisable Goods Management System (EGMS) on products such as bottled
water, juices, soda, energy drinks, other non-alcoholic beverages, food
supplements and cosmetics is also likely to hit households hard.
This
will see special stamps – which cost between Sh0.6 and Sh2.80 apiece
depending on the product – affixed on those goods, thereby raising
costs.
The stamps will be attached physically as is the case with cigarettes, wines and spirits or through electronic codes as is presently done for beer.
Activist Okiya Omtatah in March won a case challenging the rollout of the EGMS on above goods, but the taxman, who appealed the ruling, was on May 11 allowed by judges Asike Makhandia, Fatuma Sichale, and Kathurima M'Inoti to implement the system pending determination of the case.
The stamps will be attached physically as is the case with cigarettes, wines and spirits or through electronic codes as is presently done for beer.
Activist Okiya Omtatah in March won a case challenging the rollout of the EGMS on above goods, but the taxman, who appealed the ruling, was on May 11 allowed by judges Asike Makhandia, Fatuma Sichale, and Kathurima M'Inoti to implement the system pending determination of the case.
The Treasury will also be
seeking to ensure all suppliers of the goods and services to the
national and county governments are tax-compliant as well as improve
customs system and border control to reduce smuggling and
under-declaration of imports.
“There are so many
illicit, uncustomed, under-invoiced and counterfeit goods that enter our
porous borders, especially through the port of Mombasa and the Eldoret
(International) Airport,” Kenya Association of Manufacturers vice
chairperson Sachen Gudka said in an earlier interview late April.
Increased
focus will also be on diversion of transit cargo from the port of
Mombasa to land-locked countries such as Uganda, Rwanda and South Sudan
to grow tax revenue.
Mr Rotich will, however, be
seeking to incentivise companies operating in registered Special
Economic Zones (SEZs) such as Athi River from compensating tax and
capital gains tax, a move geared at attracting foreign direct
investments.
Supplies into exclusive use in the
construction of a minimum of 5,000 housing units or hotels or conference
facilities by firms operating in SEZs will also be exempted from VAT in
a bid to support affordable housing under the Big Four Agenda.
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