The Treasury has in this financial year’s budget set a goal of slashing fiscal deficit to 5.6 percent of her gross domestic product (GDP) from 7.7 percent in the year ended June, 2019, and further to 4.8 percent in the year that follows.
Economists, however, say fiscal consolidation works well when budget cuts are supported by enhanced revenue, especially tax receipts which they claim have been partly hurt by reduced credit flows in recent years due to September 2016 legal interest rate caps.
Controls on loan interest rates may stand in the way of the Treasury’s plan to cut budget deficits by nearly a third this financial year ending June, 2020, compared with a year earlier, economists at Standard Chartered Bank have said.
The Treasury has in this financial year’s budget set a goal of slashing fiscal deficit to 5.6 percent of her gross domestic product (GDP) from 7.7 percent in the year ended June, 2019, and further to 4.8 percent in the year that follows.
That depends on a series of budget cuts on non-essential items such as travel allowances and entertainment which acting Treasury secretary Ukur Yatani said last Thursday will be “brutal” in implementing.
Economists, however, say fiscal consolidation works well when budget cuts are supported by enhanced revenue, especially tax receipts which they claim have been partly hurt by reduced credit flows in recent years due to September 2016 legal interest rate caps.
“Credit growth has been weak for so long … and weak private sector momentum also feeds into weak tax revenue and complicates the stance in term of being able to reduce government projects deficit,” Razia Khan, StanChart’s chief economist for Africa and Middle East, said during the bank’s Africa Economic Outlook summit in Nairobi. Ordinary revenue – comprised of taxes and non-tax streams such as levies, fines, rent of buildings and forfeitures – have fallen short of government goal by wider margins in recent years.
The Kenya Revenue Authority (KRA), for example, underperformed the Sh1.81 trillion initial target in core revenue by Sh229.94 billion, after collecting Sh1.58 trillion.
The Treasury has in the Finance Bill 2019, set to be debated this month, proposed to repeal rate capping law after a similar move failed last year.
The High Court in March declared unconstitutional section 33B of the Banking Act, which introduced ceilings on interest rates, but suspended the enforcement of the ruling for 12 months to give Parliament time to amend the law.
But lawmaker Jude Njomo (Kiambu Town), the architect of the rate capping law, has drafted a bill to make clear the “vague, ambiguous, imprecise and indefinite” section as pointed out by the court.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
