Nairobi KENYA
The coronavirus pandemic sent the Kenya Treasury
mandarins back to the drawing board, abandoning austerity to cushion the
economy, which is expected to slow down to the lowest point since the 2007
post-election violence.
Kenya was already
out of breathing space, with huge debt repayments and stagnant taxes but is now
expected to spend more without borrowing itself into a crisis.Treasury Cabinet Secretary Ukur Yatani (L) with President Uhuru Kenyatta
In the Budget
estimates the national government had projected it could cut expenses for the
first time from Sh1.836 trillion to Sh1.804 trillion but now it has been forced
to ramp up spending to Sh1.883 trillion.
“In light of the
follow-up post Covid-19 Economic Stimulus Package interventions that saw a net
increase of Sh32.4 billion spending coupled with interactions with various
National Assembly departmental committees, Budget and Appropriations Committee
has recommended budget allocation to the national government at Sh1.883
trillion,” said Churchill Ogutu, a senior research analyst at Nairobi-based
Genghis Capital.
Treasury Cabinet
Secretary Ukur Yatani’s first Budget has come under spotlight on how he will
balance the bigger budget against shrinking revenues as businesses shut down,
workers lose jobs or face pay cuts and exports decline on supply chain
interruptions.
The mathematics
whose finer details would be unveiled today must have been tough.
The government has
indicated its intention to support specific crucial sectors of the economy from
collapsing all together, while cushioning vulnerable Kenyans from losing their
livelihoods with direct welfare cheques.
Tourism retail and
trade have been worst hit by cancellation of bookings, restrictions on
movements and operational times by imposing a dusk to dawn curfew, and the
impact is set to persist after President Uhuru Kenyatta extended the partial
lockdown for another 30 days. Generous income, sales and value added tax to
help ordinary households navigate ravages of the pandemic, which has already
cost tens of lives in the country, have created a Sh172 billion unfunded budget
hole.
Millions of jobs
have been swept away and for those workers who survived the redundancies, their
incomes have been slashed as employers seek to remain afloat.
Even as the
government loses revenues it has been forced to commit extra resources,
including Sh54 billion stimulus to tackle the impact of the disease in the
current and into the next financial year, which begins on July 1.
That comes on the
back of the mounting debt repayments schedule set to hit Sh823 billion.
While Paris club of
G20 countries and China have offered different debt relief packages that could
save Kenya some of the cost of financing repayments, the Treasury has expressed
caution over implications of the relief.
Kenya may face
credit ratings downgrades and specific clauses in the Eurobond prevent Treasury
from seeking dollar debt moratoriums.
Hence, Kenya may
still have to spend nearly half of its entire revenues to pay debt.
Yesterday, Yatani
spent hours appraising his boss, President Uhuru Kenyatta, before making known
how, if at all, his Budget would tackle these glaring imbalances amid the
unfolding calamity.
Officials aware of
Yatani’s schedule told reporters about the frantic moments with the pull
and push between his office and the National Assembly, which is the ultimate
authority in the budget-making process.
It was not
immediately possible to get through to the CS who has previously shown his hand
on how the taxation regime would change in his Finance Bill, which outlines how
the revenues would be raised.
In April, he
announced that the government will no longer give tax incentives to the rich as
part of how the revenues would be raised.
National Treasury
is, however, optimistic to ramp up an additional Sh117 billion from wealthy
individuals and industries through a modest reversal of tax exemptions.
The areas being
targeted include buying of helicopter engines, which had been exempted from
tax, yet it has had little meaningful benefits to ordinary citizens.
Sectors likely to be
hit most by the mass repeal of tax incentives as Treasury moves to shore up its
coffers include agriculture, manufacturing, education, health, tourism,
finance, social work and energy.
Yatani told
reporters then that the government has been giving tax incentives valued
at Sh535 billion, which has not translated into remarkable improvement in
investment and employment.
“We are trying to
avoid a situation where the ordinary person will be affected,” he said, noting
that they will instead be going after heavy expenditures such as hiring of
helicopters in what is likely to hit politicians, most of who are fond of
hobnobbing around the country by air.
“You buy an engine
for a plane we charge no taxes. And if you ask how the ordinary citizen is
going to benefit it is not much,” said Yatani.
However, Treasury
has come under fire for taking advantage of the current economic crisis to
introduce what analysts say are sweeping tax changes that have little bearing
on the ongoing stalemate.
Indeed, the
re-introduction of the 14 per cent value-added tax (VAT) on cooking gas might
hit the very poor the government is trying to protect.
Following the ban on
logging and introduction of anti-adulteration levy, ordinary Kenyans have
shifted to cooking gas.
Even those selling
land or homes will also have to pay a five per cent capital gains tax, a move
that analysts say will discourage investments, with most people opting to sit
on their property rather than sell them.
However, Yatani was
bullish that some of the things they are reversing have had no benefit to citizen.
“So these are things that we are reversing because we realised that the benefits which were intended to be facilitated and passed on to the ordinary people are not done. You just balloon their profits and not going to the citizen,” he said.
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