Sh2.97trn budget plan signals higher taxation

Treasury Cabinet Secretary Ukuru Yatani has signalled more taxation in the next fiscal year by raising the budget 3.2 percent to Sh2.97 trillion but cutting back on borrowing for the first time in four years.

Mr Yatani’s spending plan seeks to inject Sh1.975 trillion into recurrent expenditure between July 2021 and June 2022, while development projects would get Sh611 billion.

Counties’ expenditure is projected at Sh377.63 billion, with an additional Sh5 billion going to the contingency fund. The Treasury has indicated priority will be on completion of ongoing projects, with tighter approvals of new ones to limit budgetary pressure and wastage.

“Going forward into the medium term, the government will continue with its expenditure prioritisation policy with a view to achieving the transformative development agenda which is anchored on provision of core services, ensuring equity and minimising costs through the elimination of duplication and inefficiencies, creation of employment opportunities and improving the general welfare of the people,” Mr Yatani says in the Treasury in its draft Budget Policy Statement (BPS) for 2021.

But in what signals deeper taxation for Kenyans starting July, the Treasury says in the draft BPS that it targets raising an additional Sh194 billion from ordinary revenue.

An alternative to taxation increments would be to widen the tax net and seal tax revenue leakages.

Ordinary revenue, which includes tax on goods, services, salaries and imports, is projected to grow to Sh1.764 trillion from the Sh1.57 trillion that is targeted in the current financial year.

“We expect revenue collection in the financial year 2021/22 to spring back, buoyed by the improving economic environment, tax policy and revenue administration measures that we have put in place,” says Mr Yatani.

The Treasury projects that a rebound in revenue collection would help the government to slash borrowing from the Sh1 trillion in the current financial year to Sh937.7 billion, which will be mainly financed through domestic market sources.

If the Treasury sticks to its spending plan, it will mark the first cut on year-on-year borrowing since the financial year 2017/2018.

“The fiscal deficit in financial year 2021/22, will be financed by net external financing of Sh345.5 billion (2.8 percent of GDP), and net domestic borrowing of Sh592.2 billion (4.7 percent of GDP),” says the Treasury in the BPS.

The higher budget target, coupled with cuts in borrowing, is expected to put pressure on the Kenya Revenue Authority (KRA) to improve its collection performance in the face of tough economic times.

Tax receipts amounted to Sh673.61 billion in the July-December 2020 period, official data show, a drop of Sh105.72 billion or 13.57 per cent compared with a similar period a year earlier.

The first-half tax collection performance represents a Sh110.21 billion shortfall on a prorated target of Sh783.82 billion and is the lowest in the period since Sh630.37 billion in the six months through December 2017 when the country underwent a bruising presidential poll whose outcome was disputed by the opposition.

The Treasury says it expects total revenue, including appropriation in aid, to rise by 8.5 percent to Sh1.985 trillion in the coming fiscal year.

Higher revenue collections will help the Treasury reduce the budget deficit year-on-year from nine percent of gross domestic product (GDP) to Sh937.7 billion or 7.5 per cent of GDP.

Mr Yatani’s budget is proposing Sh1.922 trillion for the Executive, being 65.3 percent of total budget while Parliament and the Judiciary will get Sh37.88 billion and Sh17.92 billion respectively.

The education sector has been given an allocation of Sh505.1 billion, an increase of about Sh5 billion from the current fiscal year, while national security funding has risen from Sh154.5 billion to Sh170 billion.

The focus on education will continue to be 100 percent transition from primary school to secondary school, with the pupil-teacher ratio having improved gradually from 41:1 in 2017/18 to 40:1 in 2019/20.

The Treasury has proposed Sh119.85 billion as allocation to the health sector, a rise from Sh111.7 billion in current financial year.

The health sector has come under pressure due to Covid-19, which hit at a time the government was piloting key projects such as the universal health care (UHC) programme.