13 June 2014

Kenya: Uhuru Bets Big in Sh1.7 Trillion Budget

President Uhuru is betting big on heavy investments in security, infrastructure, agriculture, education and healthcare to address growing concerns from a citizenry already questioning Jubilee's ability to deliver on promises.

Kenyans have raised concerns about the deteriorating insecurity, high cost of living and doing business, joblessness, and a growing population of poor and vulnerable. In the Sh1.76 trillion Budget read by National Treasury Cabinet Secretary Henry Rotich in Parliament yesterday, the Jubilee Government said the measures outlined will "address these concerns".

Rotich however steered clear of radical measures mentioned last year to rope in the country's wealthy to contribute to nationbuilding through taxation of capital gains, a move that had been hailed as timely. Yet the government has an uphill task to raise over Sh1.18 trillion in revenues through taxes and fees - the equivalent of 25.5 per cent of GDP.

It will have to borrow locally (Sh190.8 billion) and internationally (Sh149.6 billion) to bridge the deficit. "Our development agenda and the fulfilment of our aspirations is anchored on our ability to mobilise own resources," Rotich said.

"The Kenya Revenue Authority is expected to institute measures to expand the revenue base and eliminate tax leakages." The Jubilee Government has allocated Sh226.7 billion of the shareable revenue to the 47 county governments for the incoming financial year. "This translates to 43 per cent of the most recent audited revenues approved by Parliament and is well above the 15 per cent minimum mandated by the Constitution," Rotich said.

Government will spend Sh308.6 billion on education (free primary and secondary, and feeding programme), Sh255.5 billion on energy and infrastructure, and Sh90.7 billion on national security. It will spend Sh59.3 billion on agriculture and rural development and an additional Sh9.5 billion on ongoing irrigation projects countrywide.

It has set aside Sh8.8 billion for youth and women's empowerment and Sh2.36 billion for ongoing economic stimulus programmes. Rotich announced security modernisation measures that will include replenishing the armoury, buying and leasing vehicles and aircraft, communication equipment, policing, revitalising national intelligence agencies, and installing a national surveillance system countrywide. This will focus on the Kenya Defence Forces and the National Police Service.

Government will lease helicopters "to boost surveillance" on the borders, to enhance security. These have been allocated Sh66.2 billion (policing services), Sh71.3 billion (KDF) and Sh17.4 billion (national security intelligence). "Without security, the economy will not grow and our objective of creating jobs for everyone will remain elusive.

Therefore, through this budget, we have continued to prioritise the strengthening of our security system," Rotich said. He said the government will focus on strengthening revenue collection, contain rising expenditure and eliminate "unproductive expenditure", moving forward. Enactment of the Inland Revenue Agency Bill and the Customs and Border Services Bill will re-organise the Kenya Revenue Authority to enhance tax administration.

Local manufacturers and millers emerged big winners in tax measures. Rotich increased the Import Duty on iron and steel products to 25 per cent to cushion local industry from competition from cheap imports. These were hitherto either zero-rated or taxed at 10 per cent. He said this will protect local steel mills and create more jobs as well as raise an additional Sh2.6 billion for the Exchequer. "Our steel mills are closing down due to unfair competition from cheaper imported iron and steel products," Rotich said.

He also directed KRA to immediately stop asking importers of refined industrial sugar and wheat for Customs bonds - required under the Duty Remission Scheme - an administrative barrier which he said holds back the potential of expansion and job creation by millers.

Farmers are also likely to benefit from exemption from tax of all imported inputs used in processing and preservation of seeds for planting. Rotich also effected the recent Presidential directive to allow deduction of expenses by employers when they sponsor employees on holiday from Income Tax for the next 12 months.

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