Tough Times Ahead for Kenyans as 2018/2019 Budget Nighs

Kenyans are looking forward to the 2018/2019 national budget with an abated breath. With the economic environment becoming increasingly unpredictable and with money disappearing from people’s pockets, all they hope for is a budget that will favor them. But will this be the case?

The Cabinet Secretary for National Treasury, Henry Rotich, is expected to present to the nation his budgetary plans for this financial year on 14th of June. As much as Kenyans may be hoping for the best, they should prepare for the worst because as things stand, the expected budget is out to squeeze them to death.

To begin with, this financial year’s budget will be mainly shaped along the Big Four agenda as well as the ever-ballooning public debt facing the country.

Currently, Kenya’s debt stands at 4.04 trillion shillings. This is the same as 52.6 percent of the country’s Gross Domestic Product (GDP). This is also more than 2.5 percent, above the debt level recommended by the International Monetary Fund (IMF).

Various international institutions such as the International Monetary Fund (IMF), the World Bank and the Kenya Institute of Public Research long raised an alarm over Kenya’s roaring appetite to borrow. But the Treasury insisted that the country was still ‘within the borrowing range.’

The Central Bank of Kenya (CBK), towards the end of the month of May, indicated that the government was keen on reducing its borrowing both domestic and international. Some Kenyans sighed a sigh of relief upon this announcement not knowing that it was a ‘conspiracy’ against the pockets.

The government is planning to cut down on its borrowing appetite by maximizing on its revenue collection and the only way to achieve this is through increasing of taxes which Kenyans will have to pay through the nose.

New Corporate Tax

First on the list is the proposed increased corporate tax in the Income Tax Bill that is to become effective by the September.

The bill proposes an increase in corporate tax from the current 30 percent to 35 percent for companies with an annual income of 500 million shillings and above.

Although many Kenyans might think that the bill, once becomes law will only affect big companies, this will not be the case. The effect will trickle down to the economy and consumers will have to feel the heat.

Manufacturers are going to increase the prices of their goods so as to recover whatever they would have paid the corporate tax.

Investors are also likely to keep off Kenya for other East African Countries. This is because if the new corporate tax will be affected, it will be the highest in East Africa where most countries still have it at an average of 30 percent.

Given that among President Uhuru Kenyatta’s Big Four Agenda is manufacturing, the agenda is going to be dead on arrival as manufacturing will either cut down on their investments or will keep off from starting new investments.

“I will personally supervise the collection points to make sure that those doing the job do it right and if not, we deal with them,” said CS Rotich.

Kenyans Earning above 750,000 shillings

Kenyans who earn 750,000 shillings and above will have nothing to smile in this year’s budget with this depending on whether the income tax bill will sail through parliament. According to the proposal by the National Treasury, these Kenyans will be subjected to a 35 percent corporate tax.

“The government is misplaced on this one. Kenyans who earn that kind of money are very few. What will the government get out of it? This is desperation,” a Kenyan, who did not want to be mentioned said during an interview.

Reviewing of VAT Status on certain commodities

For many years, Kenyans have been enjoying commodities such as maize and wheat flour because they were in the zero-rated category (not taxable.) The Treasury seeks to review this to tax exempt status. According to the Treasury, this will reduce the burden of paying Value Added Tax Refunds (VAT) as well as augment of government’s tax income. This is another miscalculated move that is likely to aggravate the production of certain commodities and, in the process, deteriorate consumers’ disposable incomes.

In the government’s Big Four agenda, the private sector has been cited by various analysts as being key. The move by the government to maximize its revenue collection seems to be targeting the private sector and this will place a huge blow on the Big Four.

Something more worrying is that the government might also remove medicines from the zero-rated category to tax exempt status. If this will be the case, then Kenyans are doomed.

Fuel Prices

Fuel prices have remained relatively high over a long period of time. Kenyans have had to carry the burden of ever-increasing fuel prices for Diesel, Petrol, and Kerosene. The increase in fuel prices such as diesel has often increased the cost of production in most industries in the country that rely on diesel-powered generators to power their machines.

There is a push by the Energy Regulatory Commission (ERC) to have the price of Kerosene increased to discourage Kenyans from using it. If this will be featured in this year’s budget, 60 percent of households in Kenya will have a rough year ahead. More than 60 percent of households in Kenya depend on kerosene for lighting and heating. Increasing the price of the same without providing them with an alternative will just make the already hard economic times tough.

Following the ban on logging, the price of charcoal went through the window for most households with the majority of them turning to the use of Kerosene. Currently, a charcoal tin that used to go for between 40 and 55 shillings is now retailing at between 100 and 130 shillings, more than 50 percent increase and more than 30 percent the price of kerosene per liter.

Snip at Current State of Tax in Kenya

The move by the government to want to ‘maximize’ its revenue collection mirrors the current state of tax collection in the country.

The current state of tax collection remains wanting and has often pushed the government towards borrowing both from the domestic and foreign markets.

The government’s cumulative net domestic dent for the current fiscal year now stands at 249.78 billion shillings, 26.02 billion shillings less from its target.

Something more worrying that might lead to the taking of another Eurobond is that in the next six weeks or so, debts worth 183.85 billion shillings are expected to have matured. The government will either have to absorb more than 200 billion shillings from the domestic market through Treasury Bills and Bonds or borrow but the time is short.