Higher tax burden looms in Rotich’s Sh2.6 trillion budget
What you need to know:
Treasury secretary Henry Rotich submitted an expenditure plan that is significantly higher than this year’s Sh2.48 trillion and which comes with a Sh188.5 billion increase in tax revenues to Sh1.7 trillion.
Payroll and excise taxes top the list of levies expected to generate billions of shillings in the near term, signalling a possible increase in tax rates despite the tough economic conditions.
Income tax revenue from individuals (PAYE) is projected to rise from Sh343.7 billion to Sh400.5 billion, a target that will be difficult to meet at the current tax rates and with ongoing retrenchments of workers in the private sector.
Kenyan taxpayers are headed for tough times following Wednesday’s release of official documents showing they will be required to contribute Sh188 billion more in tax revenues to finance a Sh2.62 trillion budget.
Treasury secretary Henry Rotich submitted to Parliament an expenditure plan that is significantly higher than this year’s Sh2.48 trillion and which comes with a Sh188.5 billion increase in tax revenues to Sh1.5 trillion.
Payroll and excise taxes top the list of levies expected to generate billions of shillings in the near term, signalling a possible increase in tax rates given the tough economic conditions that have wiped out many formal sector jobs.
“This performance will be underpinned by ongoing reforms in tax policy and revenue administration, through automation and inter-agency collaboration and connectivity,” the Treasury said in a statement, adding that the government plans “to complete review of the Income Tax law to modernise and align it to international practice.”
Income tax
Income tax revenue from individuals (PAYE), for instance, is projected to rise from Sh343.7 billion to Sh400.5 billion, a target that will be difficult to meet at the current tax rates and with ongoing retrenchments of workers in the private sector.
In the past five years, payroll taxes increased by less than Sh40 billion annually and the expectation that it will contribute Sh56 billion more in the new financial year signals a possible tweaking of the tax bands to boost collections.
Such a move would ordinarily target high-income earners who pay an effective tax of about 30 per cent.
The PAYE bands were recently tweaked to give workers a monthly tax break of between Sh181 and Sh609 and the planned reforms could wipe out the marginal gains that some employees made from recent reforms.
PHOTO | BD GRAPHIC
The first band is charged tax at the rate of 10 per cent from where the charges rise to a maximum of 30 per cent (now applicable to those earning more than Sh42,781 a month).
Excise taxes, which have mainly targeted alcohol and cigarette consumers, are expected to contribute Sh19 billion more for a total Sh199.8 billion.
Part of the projected increase in collections is likely to come from a provision in the Excise Tax law that allows the government to adjust the levy upwards in line with inflation.
The cost of living has stayed above the six per cent mark in the past 12 months and is expected to rise above seven per cent in the coming months buoyed by rising crude oil prices, a weaker shilling and the debilitating drought that has increased the cost of food.
That means excise taxes could rise even higher at the start of the new fiscal year in July.
Beer is currently taxed at Sh100 per litre, cigarettes at Sh2,500 per mille, fruit juice at Sh10 per litre and plastic shopping bags at Sh120 per kilogramme according to the Excise Tax law.
Remission on Senator beer, which is popular with low-income households, was scrapped last year.
Before it was removed, the tax was charged at the rate of 90 per cent of the excise tax on standard beer.
Increased collections are to be the main driver of the expected rise in total tax revenues from this year’s Sh1.5 trillion to Sh1.7 trillion in the next fiscal year.
Finance key projects
President Uhuru Kenyatta’s government plans to use cash to finance key expenditure plans, including mega infrastructure projects that have come to define the Jubilee administration.
Roads, for instance, will consume Sh134.9 billion while Sh75.5 billion will be spent on the Standard Gauge Railway.
A recent announcement of a deal to increase the salaries of all civil servants starting July is also expected to take an additional Sh25 billion -- seen as a vote winning move in an election year.
The plan, which the Cabinet approved recently, was not in the 2017 Budget Policy Statement.
“The allocations in the financial year 2017/18 Budget will broadly remain the approved Budget Policy Statement (BPS) 2017. However, the proposed full year 2017/18 Budget Estimates provide room for allocation of Sh100 billion for salary increases for all public servants starting July 2017,” a statement from State House said.
The government will also spend some Sh156.4 billion on the education including the Free Day Secondary Education, Free Primary Education, disbursements to the Higher Education Loans Board and investment in laptops and digital content.
Public healthcare including leasing of medical equipment and the free maternity programme has been allocated Sh37 billion.
Treasury documents show that the budget will come with a fiscal deficit of Sh582.5 billion, equivalent to seven per cent of GDP to be financed by local and international debt.
These include a net external financing of Sh206 billion and net domestic borrowing of Sh328.9 billion.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
