Kenyan taxpayers will contribute Sh254 billion more in the coming fiscal year to finance the Treasury’s Sh2.53 trillion budget that is centred on President Uhuru Kenyatta’s ‘Big Four’ agenda.
Treasury secretary Henry Rotich is expecting the additional revenue to come from higher sin taxes, income tax and the looming increase of value-added tax (VAT) on petroleum products, according to the budget expenditure documents submitted to Parliament.
“This performance will be underpinned by ongoing reforms in tax policy and revenue administration. The government has already simplified and modernised the VAT and Tax Appeals Tribunal legislation and a new Excise Tax Act is fully operational,” the Treasury says.
Mr Rotich expects the Kenya Revenue Authority (KRA) to collect Sh1.743 trillion in taxes for the year ending June 2019, up from this year’s Sh1.489 trillion.
Overhaul income tax
The Cabinet Secretary has also promised total overhaul of the Income Tax Act, signalling a possible increase in income taxes to finance the exchequer.
“Going forward, the government will implement various measures to boost revenue mobilisation. These measures will include complete overhaul of the current Income Tax Act, strengthening tax administration and expansion of the tax base,” he says.
A review of the income tax law was expected in the current fiscal year but was suspended because of its potential to cause political discontent ahead of last August’s General Election.
Excise taxes on beer and cigarettes are already subject to inflation-based increases every two years — under a law that was passed three years ago but was also suspended because of possible political repercussions.
Petroleum products will start attracting 16 per cent VAT beginning September, a move that will add about Sh17 on every litre of the commodity and is expected to raise up to Sh70 billion in new tax revenues.
Income tax contributes nearly half of all ordinary tax revenues (48.5 per cent), followed by VAT (26 per cent), excise tax (12.5 per cent) and import duty (seven per cent), with the remainder coming from investment income and other revenues.
The higher tax target now turns the spotlight on the taxman who has in recent years missed targets, partly due to tax evasion and leakages, forcing the government to borrow heavily to finance the resulting deficit.
Budget documents show the Treasury plans to run a fiscal deficit of Sh562.7 billion (inclusive of grants), equivalent to 5.7 per cent of GDP to be financed by borrowing.
This consists of net external financing of Sh282.5 billion, net domestic borrowing of Sh276.1 billion and other net domestic receipts of Sh4.2 billion.
In the first seven months of the current fiscal year ending June 2918, the KRA collected nearly Sh753.32 billion, representing just over 50 per cent of the full year target.
The Treasury has recently pushed through a raft of tax administration reforms, including the rollout of the integrated customs management system (ICMS) to seal revenue loopholes at the customs department, integration of I-Tax with IFMIS to enhance compliance and a drive to rope in the informal sector, nil and non-filers into the tax net.
The expenditure plan shows an allocation of Sh460.2 billion towards implementation of Mr Kenyatta’s Big Four agenda on food security, universal healthcare, housing and increased manufacturing.
Sectoral allocations show that infrastructure and education sectors will once again receive the biggest allocations in the Sh2.53 trillion budget.
Infrastructure, transport and logistics, under which key projects such as the standard gauge railway and roads fall, will receive Sh271.6 billion, while education gets Sh194.5 billion.
The government will also spend Sh60.4 billion on environmental protection, flood control and water harvesting in the next fiscal year. Healthcare services have been allocated Sh44.6 billion, and energy Sh45.4 billion.
The single biggest expenditure item is, however, debt service from the Consolidated Fund that will consume half of ordinary revenue in interest payments and settling maturing debt.
Some Sh870.7 billion will be spent on interest payments and redemption of domestic and foreign debt — representing a 43 per cent increase from the Sh608.4 billion in the current fiscal year.
The pensions bill is also expected to increase by a fifth to Sh86.25 billion, from Sh71.9 billion in the current year.
Retired civil servants take up the bulk of the funds at Sh61.3 billion in both monthly and commuted (gratuity) pension, followed by the military at Sh16.6 billion.
MPs’ pensions will cost taxpayers Sh3.05 billion.
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