Why there’s not much to celebrate in Kenya’s Budget

NAIROBI: The Sh2.1 trillion budget unveiled on Thursday by Treasury Cabinet Secretary Henry Rotich continues to receive criticism as being unfriendly to the common man.

Grant Thornton Senior Associate Mbiki Kamanjiri during a post budget analysis event yesterday said the incentives in this year’s budget are long-term noting there was no reduction in direct cost of goods.

He said the budget failed to come up with incentives to bring down cost of commodities. He said the increase in price of fuel and plastic bags will affect the cost of goods. “It is a normal trend that a slight increase in fuel prices will increase the cost of transport which will affect the cost of food and electricity,” said Mbiki.

He added that there was no need to reduce the prices of raw materials for making pasta because Kenya is not dependent of pasta as stable food. Mbiki said Kenyans might have been happier if the government had reduced the prices or scrapped VAT on wheat flour.

All households will especially feel the pinch through costlier petroleum whose price will rise by Sh3 per litre, which will have far-reaching implications through higher fares, and costlier cooking energy sources and manufactured essential commodities.

Beer lovers and smokers were also hit in this year’s budget. Rotich said there would be tax rebates for manufacturers of cheap and safe alcohol.

A partner at Grant Thornton Parag Shah pointed out that real estate is untapped market. He said there is a likelihood that rent on residential property might go up. “The landlords might want to pass this on to the tenants but if you look at the broader picture, they were eventually paying the 30 per cent and therefore by simplifying it and bringing it lower it should correctly not pass to the tenants. However, if there was any unfair play or those who were not paying in the past, they might want to pass it to the tenants,” he said.

Rotich proposed to simplify the taxation regime for landlords owning residential property by taxing their gross rental income at 12 per cent for gross rental income below Sh10 million per year. This is a climb down from the usual 30 per cent.

Shah explained that by introducing a tax amnesty for landlords who have not fully declared rent or are outside the tax net, it will increase compliance and can be a good revenue collection going forward.

SPECULATION PURPOSES

Grant Thornton Director tax Samuel Mwaura said Kenya can be self-sustainable thereby finance the 2015/2016 budget by diversifying tax collection noting that new tax brackets have to be introduced so that KRA can enforce collection. He said the country heavily relies on the same tax payers year-in-year out and there has not been any effort to introduce new tax payers into the tax bracket.

Mwaura explained that the CS had options such as increasing the rate of Capital Gains Tax to 10 per cent as few people are compliant and thus they would have gotten more money.

He added: “Rotich could have also introduced taxes on idle land as people are holding large chunks of land for speculation purposes, introduce tax on inheritance, informal sectors such the matutu. We have also rich traders in Gikomba who deal in cash and don’t pay taxes as well as many traders in Eastleigh.”

Mwaura said the CS did his best having given some of the highest allocations to security and infrastructure however, of great concern is prudent management of funds. He added that the government missed an opportunity to raise more revenue by increasing the tax on the telecommunication industry.