Kenya Loses 50 percent of its Budget to Corruption – PKF East Africa

Kenya loses over 50 percent of its National Budget to corruption according to PKF East Africa, a tax firm.

Speaking at a pre-briefing in Nairobi on Monday on Kenya’s 2016/2017 Financial Year PKF said despite the positive steps taken to combat corruption in the public sector, the adverse effects of corruption in various agencies of government ‘cannot be overlooked’.

Atul Shah, the Chief Executive Officer called for stricter sanctions and penalties with the review of the Economic Crimes law add the Penal Code as they are currently ‘very lenient’.

There is urgent need for parliament to amend the Penal Code and the Economic Crimes Laws to impose stringent sanctions and penalties including death sentence and life imprisonment, he said.

Shah also called for the outsourcing some of the Auditor General’s functions to the private sector soaring rate of corruption within the counties and the Office of the Auditor General is strained for capacity to handle the growing needs for audits.

Michael Mburugu, Partner at PKF said,”There is a lot of wastage within the counties. This has been attributed greatly on travels, and seminars. This would greatly affect the budget as they are the consumer of the national budget”.

Read:

• Was Devolution an Evolution of Corruption?
• The Cost of Corruption in Kenya

Mburugu calls the FY2016/17 Kenya budget as ‘populist budget’ as the current government completes its term and the quest to fulfil their campaign pledges.’

The Firm however, says Kenya is at 41 percent on its debt level below the threshold set by World Bank and the IMF and it should borrow more. ‘Kenya is heading in the right direction however, there is more room for improvement.’

However, the Parliamentary Budget Office (PBO) says the level of debt in Kenya is approaching unsustainable levels and is expected already the ratio of debt service to revenue has reached its limit of 30 percent and is expected to bypass its limit in the 2017 by 4.7 percentage points on account of debt redemptions and interest rate costs that are expected to rise substantially in the FY 2017/18.

In the report, Unpacking the Estimates of Revenue and Expenditure for 2016-17 and the Medium Term, the experts state, “Overall, the budget for 2016/17 appears to build on policies that have been put in place in the previous years and expenditure has increased based on some changes from the previous year’s budget. The pace of growth is therefore likely to remain, on average, on the same level as it has been in the previous years. It is projected that the economy will grow by 5.6 percent in 2015 rising to 5.8 percent in 2017. ”

Thus, to achieve a projected 6.1 per cent growth in 2016 from 5.6 percent in 2015, they propose: to complete its infrastructure expenditure commitments, reduce the recurrent expenditure with an aim of reducing the wage bill, they call for the empowerment of the Salaries and Remuneration Commission in structuring the job grade scale to eliminate duplication of duties.

To stabilise the financial sector, they propose strict measures to be put in place to ensure commercial banks reduce cost of borrowing and assist the shilling regain its strength.

”The current interest rates are quite prohibitive for economic growth. It should be brought down, ” said Shah

On the other hand, Mburugu said,”A higher interest rate regime is not good. It will in fact ‘contract’. Banks need to take a socially responsible attitude and bring down thee interests rates.”

The firm noted that, the existing laws on tax had drafting errors and there was need to review them to align. Key laws that need amendment to the provisions include: the Tax procedures Act 2015 which calls for clarity in its inconsistency with the administration of excise duty from the East African Community Customs and Management Act.

They want the Treasury CS to table a new Income Tax Bill to overhaul the existing Act that will review the tax provisions that impose tax on interest rate paid on both foreign and local loans borrowed by foreign controlled companies whose loans exceed their equity.

”This will discourage foreign investments while the government is on a roadshow to attract foreign investors and foreign capital. Thus, we propose the scrapping of thin capitalization law as it is outdated,” Mburugu said.

Mburugu further noted that, Kenya is ripe for a tax amnesty and they propose that the government offers a 6 month period of amnesty to taxpayers who have not paid their taxes to come forward and volunteer to pay tax arrears in exchange for waiver of penalties and interest.

Kenya is projected to have an overall budget deficit equivalent to 9.3 percent of its gross domestic product for the fiscal year starting in July.

However, due to its low absorption uptake, it expects it to drop to 6.9 per cent of GDP according to the Budget Policy Statement for the FY-2016-17.

Read:

• Kenya Sets FY2016/17 Budget Deficit to 9.3 percent Starting July
• KRA collects Ksh132.1 billion in April
• Unfair taxation in Sub-Saharan Africa

Kenya’s Treasury Cabinet Secretary Henry Rotich will on Wednesday present the 2016-17 national Budget statement themed “sustaining prosperity in a volatile global economy”.

“This is to notify the public that the Budget Statement for the Fiscal Year 2016-17 will be delivered by the CS Treasury to the National Assembly on Wednesday, the 08th June, 2016 at 3pm,” a statement by Treasury PS Kamau Thugge reads.