Rotich moves to protect local manufacturers

The 2015/2016 Budget is anchored on ‘Build Kenya Buy Kenya’ initiative as the Government focuses on improving the ease of doing business and encouraging local consumption.

But this does not come easy. Taxpayers are expected to fund 65 per cent of the budget with tax revenue set at Sh1.3 trillion.

The balance of Sh800 billion will be financed through borrowing and donors. This will put more pressure on Kenya Revenue Authority (KRA) to collect more and reduce tax leakage.

The budget has greatly addressed ways the State plans to cut the cost of doing business in Kenya. The National Treasury Cabinet Secretary Henry Rotich focused on critical thematic areas which the government hopes will address concerns raised by Kenyans and help achieve accelerated and inclusive growth. Security being a major factor in the business environment has been allocated Sh223.9 billion.

The fight against corruption will also be addressed by improving governance in parastatals. The Government will also use the Public Private Partnership (PPP) model to fund key development of projects, reassuring private investors and unlocking private sector capital. Improved infrastructure as evidenced by the road network and construction of the Standard Gauge Railway and the recent 30 per cent drop in the cost of power will attract private investors.

The budget also protects local manufacturers largely. Rotich increased duty on imported sugar, plastic tubes for paste and cosmetics to reduce competition from foreign investors. Further, excise duty has been reduced on paper products for packaging industry and aluminum milk cans from 25 per cent to 10 per cent. Reduction of the Import Declaration Fee from 2.25 per cent to 2 per cent will also promote importation of raw materials required for local production.

Capital Gains Tax

A major tax incentive that has come with this budget is the tax rebate scheme for employers to train 10 fresh graduates for a minimum of 6 to 12 months to build resource base for skilled man power in the country. This is to facilitate private enterprise growth for job creation. The Government has also given a tax amnesty to property owners who have not declared their income and cut the tax to 12 per cent of the gross income for rental income below Sh10 million per annum. The tax amnesty aims to increase collections for rental income since not much has been collected since the introduction of this source of revenue.

In the spirit of tax modernisation, Rotich proposed to introduce the Tax Procedure Bill which will unify procedures across the three tax legislations – Income tax, Value Added Tax and Excise duty. This together with the new Tax Appeals Tribunal will improve tax administration and help speed up tax disputes resolution.

Following promises made during 2013/2014 financial year, taxpayers were hopeful that they will see the actual tabling of a revised Income Tax Act during the reading of the budget speech which has now been proposed for completion in September 2015.

Also, the lack of a clarification on the implementation of Capital Gains Tax might further strain KRA on missed revenues from the gains made in the more than 3,000 daily transactions at the Nairobi Securities Exchange. It is also important to note that KRA has received Sh1 billion for modernisation. This should help in ensuring that the iTax system is at its full capacity. This will also assist the taxman to train more taxpayers who are still struggling to use the new technology.

—Linsey Adhiambo is a senior manager, Tax at Grant Thornton Kenya. She can be reached on Linsey.Adhiambo@ke.gt.com