National Treasury Cabinet Secretary Henry Rotich on Thursday read the 2019/2020 budget in Parliament.
Many economic experts and analysts had foreshadowed the introduction of new taxes to fund the ambitious Sh3.02 trillion budget which had a Sh607 billion deficit against the revenue. This on the backdrop of the failure of the taxman to meet its target in revenue collection and an outstanding public debt that has skyrocketed to an all-time high of Sh5.4 trillion.
However, as it is in any budgetary statement, there are winners and losers.
The government has allocated Sh473 billion to the education sector, the biggest winner in next year’s budget which starts on July 1. The sector is expected to spend a huge chunk of money on recruitment of new teachers to support the 100 percent transition of students from primary to secondary school.
While continuing to support free primary and secondary education, the sector will also prioritize special needs education and provide examination fees for candidates sitting for the KCPE and KCSE examinations in their budget.
Seen as a move to support the manufacturing industry, one of President Uhuru Kenyatta’s legacy pillars, CS Henry Rotich announced a 30 percent tax reduction on electricity for manufacturers. This will lower the cost of production.
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He also announced a reduction of withholding tax from six per cent to two per cent, a move that should translate to free cash flow.
Additionally, the budget will favor environment-friendly firms. “I propose to exempt from VAT, all services offered to plastic recycling plants and supply of machinery and equipment used in the construction of these plants to promote plastic waste management,” said Rotich.
Youth, women and persons living with disability
The government has also vowed to clear pending bills owed to the youth, women and persons living with disability; a directive issued by President Uhuru Kenyatta during the Madaraka Day celebrations earlier this month.
“We have prioritized Sh10.9 billion of the verified pending bills which will be paid before the end of this month. This will eliminate most bills owed to the youth, women and persons living with disability,” Rotich said.
Furthermore, the youth are set to benefit from the Ajira program which the government says will enable over million youth annually to be engaged as digital freelance workers. The main aim of the program is to bridge the gap between skills available and demand.
However, the government has proposed that registered members should pay a registration fee of Sh10,000 for the next three years with effect from January 2020 to provide stability for youth engaged in the program.
Security and the war on graft
Viewed as one of the major setbacks in achieving the big-four agenda, corruption has been a mainstay in the Jubilee administration. Consequently, the government has enhanced allocations to institutions mandated to fight the vices.
The asset recovery agency is the biggest winner in this category having being allotted Sh50 billion while the criminal investigations services comes in second with an allocation of Sh7.1 billion.
The Ethics and Anti-Corruption Commission (EACC) and office of the director of public prosecutions will pocket Sh2.9 billion and Sh3 billion respectively.
When reading the 2019/20 budget, Kenya’s overall highest, Treasury CS Henry Rotich said that the budget was aimed at transforming the economy and advancing the big-four agenda.
While CS Henry Rotich proposed new austerity measures to limit government spending in lieu of a burgeoning wage bill, experts have argued that tough times still lie ahead.
Gamblers, drinkers and smokers
“Betting has become widespread in our society and its expansion has had negative social effects particularly to the young and vulnerable members of society,” said Rotich amidst applause from some MPs in Parliament.
The cabinet went on to say that the government will introduce a 10 percent excise duty on betting activities in order to “curtail the negative effect arising from betting activities.” This means that for every Sh5,000 won in gambling, the government will automatically deduct Sh500. A blow to the ‘hustler nation.’
Furthermore, the government has introduced new taxes on cigarettes and some alcoholic drinks like wines and whiskeys. “I propose to increase the rates of excise duty on cigarettes, wines and spirit by 15 per cent,” Rotich said. This will see smokers pay Sh8 more for every packet of cigarettes while drinkers will part with Sh24 more for 750ml wine and Sh18 more for 750ml of liquor.
A 750ml bottle of wine will attract excise duty of Sh136, while the same volume of whiskey will invite a Sh182 duty. The excise duty on a packet of 20 cigarettes will increase to Sh61 per packet.
Boda boda operators
Kenyans could now be forced to pay more to hitch a boda boda or tuk tuk ride as CS Rotich proposed a bill that would require boda boda operators to acquire third-party insurance covers.
The Kenyan boda boda sector has employed over 500,000 people and its users who will carry this additional cost when the new bill takes effect on thousands of operators who function without the necessary insurance covers
“The accident victims mostly from the lower cadres of society, are left to seek financial assistance for treatment from friends and relatives since these boda bodas are not insured,” said the Treasury CS.
Rotich goes after the wealthy
The wealthy were also not spared in new tax proposals that will target profits realized from sale of assets. The Capital Gains Tax (CGT) is set to be raised by more than twice from 5 percent to 12.5 percent.
For instance, a trader who wants to sell their shares for a profit of one million will have to part with Sh125,000 which will be deducted by the taxman. Treasury projects to realize about Sh35 billion from CGT alone.
Blow to retired civil servants
In a bid to curb exorbitant government spending, CS Rotich announced a raft of measures to save taxpayers more money. To start with, he declared the government will restrict recruitment of civil servants to key technical staff, teachers and health workers to trim the wage bill.
The government will also look to clean the public service system by further getting rid of ghost workers but it is retiring civil servants who might get the biggest blow. In the new changes, the government plans to limit the extension of services for civil servants who are retiring at the age of 60.
“Mr Speaker, the pension budget has increased by over three-fold in the last 10 years from Sh25 billion in FY2008/09 to Sh86 billion in FY 2018/19. This is unsustainable,” he said.
The Treasury CS insists that the Kenyan economy continues to be resilient as “in 2018 our economy grew by 6.8 percent up from 4.9 percent in the previous year,” the highest growth to be recorded in the past 8 years.