If Mr Herman Otwoli, a grains seller, had the opportunity to plan Kenya’s budgetary priorities, the speech that Finance minister Uhuru Kenyatta unveiled this month would have read differently.
“I would push for the removal of indirect taxes on basic items because it is the poor who end up bearing this burden,” the 45-year-old trader at Nairobi’s Mutindwa Market told the Business Daily a day before the Budget Day.
None of his hopes were factored in the 2010/11 fiscal year budget.
Like many low-income earners, Mr Otwoli appreciates increased expenditure on social programmes such as free education, school feeding programmes and bursaries, but still feels it is unfair to subject his meagre income to any form of taxation.
“The schools feeding programme and free primary education supports have made it possible for my three children to stay in school, but the Government ought to increase taxes on the salaried and other well to do people to sustain them,” he said.
These views sharply contrast with those of Michael Ndegwa, a 30-year-old relationship manager at a local bank and an MBA student at the University of Nairobi.
Mr Ndegwa had hoped for the revision of the current income bands so that citizens earning less than ‘six figure digits’ are charged less as top earners attract steeper tax rates.
He had also wished for wider tax base in the hope that more money netted from the informal segment of the economy would ease pressure on the small portion of the population that falls in the working class category.
“The tax system as it stands at the moment tends to punish formal sources of income and unless a mechanism is found to redistribute the current burden equitably among the citizens, the state may end up sending wrong signals to loyal taxpayers,” says Mr Ndegwa.
He feels that the taxpayers’ money should be invested in setting up recreation facilities and in funding law enforcing institutions like courts and police to fight the rising crime rates.
The two sets of views above point to a wide gap that currently exists between policy makers and the intended beneficiaries.
This gap has been contested by members of parliament who have accused Treasury of isolating them in the budget preparation process.
If the draft constitution is approved in the August referendum, parliament will have the chance to review proposals made by Treasury before they are finally presented on the Budget day.
But critics say the outcome would be different if a more participatory process was to be adopted right from the start.
Dr Samuel Nyandemo, a senior economics lecture at the University of Nairobi sees the current budgetary process as a repetitive ritual that has lost touch with reality as it incorporates very little input from experts and industry.
Obsessed with salaries
“Our financing deficit continues to widen because we are so obsessed with taxing salaries. We tend to leave out many (informal) incomes which can plug the deficit and instead peg our fate in the hands of unpredictable donors and the expensive domestic borrowing,” he said.
While tax experts have traditionally argued that collecting taxes from informal segment of the economy involves expensive administrative structures, Dr Nyandemo proposes income that can be collected at source (firm provided the good or service) rather than at consumption point.
However, days of running the budgetary process as an exclusive ritual of faceless Treasury mandarins appears numbered.
From the next fiscal year, the government has committed itself to start incorporating views of beneficiaries in the planning, monitoring and executing social programmes in a move aimed at increasing the development fund’s execution rates.
On Wednesday last week, the Government launched a social budgeting framework that will provide guidelines for the participation of ordinary citizens in setting social development priorities.
Social budgeting framework (SBF) allows citizens-as represented by various interest groups that include the civil society, faith groups and media – to sit with government officials from district up to national levels - identifying, planning and executing various social projects.
It seeks to create awareness on all programmes and activities in the social sector while providing citizens with opportunity to influence national decision making process.
“The introduction of social budgeting has been borne out of the realisation that the current top-down budgetary process has had minimal impact on communities despite past immense resource allocations to eradicate poverty,” assistant planning minister Mr Peter Kenneth, said at its launch.
The SBF comprises national, sectoral and district observatories – each assisted by a social policy advisor— and connected to national level planning and budgeting organs.
The guidelines launched last week are meant to ensure that all these observatories operated in uniform and standardised manner.
“In identifying district priorities, each observatory will be also be guided by district survey reports, sector evaluation reports, key issues identified by the media, national policy frameworks and the national / international human rights obligations,” reads the guide.
Dr Olivia Yambi, Unicef’s country representative says the national roll-out of the social budgeting guidelines will attract more resources, giving children and women’s rights the visibility and importance that has been long lacking.
“SBF will make the current medium term expenditure framework more responsive to the people’s needs and equitable in the allocation of resources,” she said.
Over the past two years, the government has proposed several social protection mechanisms that experts say will improve the lives of millions of children and women if well understood and implemented.
In the 2009/10 fiscal year, the government, with the support of donors, has introduced a Sh780 million Social Protection Programme and proposed the enlargement of its Cash Transfer Programme from Sh540 million to Sh780 million.
Also introduced during the time was the Sh500 million food subsidy scheme for the poor households and the Sh10.8 million for maternal and new born services.
It was also during the same period the proposed support to the elderly was expanded from Sh4 million to Sh98 million.
“These increased allocations highlight what can be achieved if social budgeting is applied on national scale,” said Dr Yambi.
In his latest Budget Speech, Mr Kenyatta stayed on the path of social expenditure programmes by allocating additional Sh2 billion each for free primary and secondary tuition – bringing the total spend on the two projects so far to Sh9.2 billion and Sh16.2 billion respectively.
While they hail social budgeting as an important step experts want the government to make the whole budgetary making a more consultative process with input from diverse interest groups.
For instance, it is believed that stiff opposition by parliamentarians has prevented the government from reintroducing the tax on capital gains.
The MPs had initially short down similar proposal in 2006 when former Finance minister Amos Kimunya tried to introduce it in the national budget.
“By not taxing wealth made from capital gains, the government is leaving out an important tax base that can help to reduce pressure on the working class,” says Mr Martin Kisuu, a tax partner at the regional consulting firm, PKF.
Next month, Kenya is launching a common market with Tanzania and Uganda—the two countries that impose capital gain taxes on investors raising concern over the parity of the regional market.
“Capital gains tax can dim the rising enthusiasm in the construction industry, thwarting efforts to increase the supply of housing units to match the rising demand,” said Mr Frank Ireri, one of the opponents of the capital gain tax in the country.