15 June 2013

Kenya: Budget to Heavily Depend On Taxes

Listening to Henry Rotich lay out the government expenditure plans for the coming year, you could allow yourself to get excited. A million acres under irrigation supplying cheap food to the nation with even surplus to export; a well-equipped police service powered by 2,000 leased vehicles traversing the country ensuring citizens go about their business in peace and harmony. A brand new railway running from Mombasa to Kisumu employing standard gauge and lowering the cost of transport by several orders.

The devil though is in the details.

Rising to make his maiden budget speech, career Treasury bureaucrat Henry Rotich made several notable spending measures aimed as he put it to create jobs, growth and a sustainable future.

The expenditure is expected to be Sh1.6trillion with government projecting to raise Sh1.28 trillion to meet it leaving a deficit of Sh356billion although that declines to Sh329billion when you consider that part of the expenditure is to finance repayment of external funding.

Out of the Sh329 billion hole, external funding will make up Sh223 billion leaving government to borrow Sh106 billion domestically.

That is the figure Treasury has said it will borrow domestically. However, that always rises to about Sh125-Sh130 billion with the supplementary budget mainly because of shortfalls in the taxman's collections.

Additionally, some projects mainly roads have had to be postponed to make up the funding.

So, can this budget be met?

It will be difficult to deliver on not only because of its size, but also it promises very specific, measurable and complex projects.

It also makes no attempt at savings. With 44 ministries collapsed into 19, we should see significant savings in streamlining these ministries and cutting out the excess fat to reduce the public wage bill.

For starters, the new railroad will be built on hard taxes. Treasury proposes to charge 1.5 per cent on all imported goods to fund a Railway Development Levy. Going back by last year's figure of Sh1.3trillion import bill, Treasury looks set to collect Sh15billion yearly.

The laptop project is probably the most complex as well as the most watched. Facing equal measure of support as opposition, it proposes to equip kids, some who observers claim have no food, with laptops to set them on their way to a digital future. Just procuring and delivering, training teachers and safekeeping these laptops as well as weaning ourselves of the billion-shilling book publishing industry will be no mean task. What software to use, which models to buy, who to develop the content will all plague the project.

Cleverly, many of these projects are multi-year hence spread across one financial year and government can term them works in progress at any point. The money set aside for irrigation for example this year, is only to do the preliminary work. And with public procurement promised to reduce down to a maximum of 30-days, it will be interesting to see how the police service goes about leasing the 2000 vehicles it has been promised annually.

The Kenya Revenue Authority is under even more pressure to deliver and has been fanged appropriately; apart from being allowed to access companies' books of accounts, it will also collect money on winnings in lotteries and bets, will be required to map all rental houses and collect taxes and will soon be implementing the capital gains tax.

In short, much of the success of this budget depends on taxes, taxes and more taxes and to a wider base.

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