Economy

Uhuru’s budget for new President signals higher taxes

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President Uhuru Kenyatta. PHOTO | PSCU

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Summary

  • President Uhuru Kenyatta’s last budget will put his successor under pressure to raise Sh342.20 billion additional revenue to implement his preferred projects.
  • Mr Kenyatta’s administration has proposed a budget of Sh3.31 trillion for the financial year starting July 2022, a month before he leaves office.

President Uhuru Kenyatta’s last budget will put his successor under pressure to raise Sh342.20 billion additional revenue to implement his preferred projects, setting up Kenyans for higher taxation.

Mr Kenyatta’s administration has proposed a budget of Sh3.31 trillion for the financial year starting July 2022, a month before he leaves office at the end of the constitutional two-year term.

The Treasury plans to spend Sh278.81 billion or 9.2 percent more than the budget for the current year in a bid to enhance investments in Mr Kenyatta’s legacy projects under the Post-Covid-19 Economic Recovery Strategy and the floundering “Big Four” Agenda.

Kenya will continue to splurge on infrastructure projects and a stimulus plan to maintain economic growth in the face of the coronavirus crisis, which delivered layoffs and business closures.

The additional revenues needed to fund the bigger budget will most likely trigger an aggressive pursuit of tax cheats and possible increase in taxes.

The front runners in the 2022 presidential elections — opposition leader Raila Odinga and Deputy President William Ruto — have promised additional social spending.

“The budget framework has focused on the ‘Big Four’ Agenda, Post-Covid-19 Economic Recovery Strategy and the strategic policy initiatives of the government to accelerate growth, employment creation and poverty reduction,” Treasury Cabinet Secretary Ukur Yatani wrote in draft Budget Policy Statement (BPS) for 2022.

The new president who will take over from Mr Kenyatta will need to increase ordinary revenue to nearly Sh2.41 trillion next financial year against the Sh2.06 trillion estimate for the current year.

Ordinary revenue comprises taxes and non-tax streams such as court fines, charges for use of government services, rent from buildings and forfeitures

“Revenue performance will be underpinned by the ongoing reforms in tax policy and revenue administration and boosted by economic recovery occasioned by implementation of priority programmes under the Economic Recovery Strategy (and), the ‘Big Four’ Agenda,” the Treasury wrote in the draft BPS.

This signals deeper taxation for Kenyans starting July. An alternative to taxation increments would be to widen the tax net and seal tax revenue leakages.

Kenya projects its economy will expand by 6.6 percent this year. Growth plummeted to 0.6 percent last year as key sectors like tourism and related services collapsed at the onset of the coronavirus crisis.

To maintain growth, Mr Yatani boosted spending on infrastructure projects like roads, education and security, which will get an additional Sh40.9 billion ahead of the polls.

Further funds were designated for a raft of signature projects initiated by President Kenyatta in his legacy development programme ahead of his retirement.

The security threats include terrorism, radicalisation, human and drug trafficking, money laundering, and cyber-crime.

“In view of the current school indiscipline, unrest and lawlessness, the sector will work on modalities to strengthen security and safety of public schools, tertiary training institutions and universities,” the Treasury says.

Mr Kenyatta, who took the helm in 2013, has presided over a rapid increase in public borrowing. Total debt stands at 70 percent of GDP, up from about 45 percent when he took over.

The ceiling for the national government budget has been put at Sh2.02 trillion, which is 6.97 percent more than the Sh1.89 trillion for the current financial year.

Parliament’s budget has been raised 1.57 percent to Sh38.48 billion, while the Judiciary’s is up 5.39 percent to Sh18.88 billion.

Expenditure for counties is projected at Sh370 billion, which is unchanged from the current budget, setting the stage for opposition from governors and senators who have been pushing for more funds for the devolved units.

The Independent Electoral and Boundaries Commission (IEBC) budget will be increased Sh7.33 billion to Sh21.69 billion a month to presidential polls set for August 9.

Energy and infrastructure will get Sh32.5 billion more to Sh368.3 billion in the plan to jumpstart construction of 4,540 kilometres of roads in three years, generate additional 85.7MW of geothermal power, build 520km of power transmission lines and connect 750,000 new customers to the electricity grid.

Funding will also be injected into modernisation of Jomo Kenyatta International Airport (JKIA) and Moi Internal Airport as well as expand the Malindi and Isiolo airports.