14 June 2018

Kenya Budget 2018 - the Key Issues

Treasury secretary Henry Rotich is due this afternoon to read the budget speech, which contains his tax measures to finance a record Sh3 trillion spending plan.

The proposals are expected to hit ordinary consumers and high-income earners the hardest.

Mr Rotich is expected to impose taxes on key consumer goods such as flour, bread and fuel by largely playing his hand on the VAT law.

He is using the Tax Laws (Amendment) Bill 2018 to introduce the new measure expected to add billions of shillings in tax revenue to the State coffers.

The Treasury secretary has also proposed a change in income tax laws to increase the tax charged on high-income earners -- up to 35 per cent from the current 30 per cent.

These two are some of the specific measures Mr Rotich is expected to submit to Parliament as he reads his reads his speech this afternoon.

Consumer tax pain in Rotich's Sh3trn budget

Kenya's public debt load hits Sh5trn

The measures previously highlighted in the The Tax Laws (Amendment) Bill 2018 include changes on tax regimes on basic some commodities Mr Rotich had aimed to make affordable in 2017.

No niceties

Being a post-election budget, the spending plans are not likely to be laced with niceties targeting the common man like last years did in its bid to reduce maize flour and bread prices.

The change in the VAT regime on commodities like LPG, bread, milk, maize flour, bottled water and processed fish that shifts them from zero rating to VAT exempt is likely to make them even more expensive.

Mr Rotich is also expected to outline changes in the taxation of winnings by introducing a withholding tax of 20 per cent on winnings from betting, lottery, gaming and prizes that are paid to both resident and non-residents.

Implementation challenges

A similar to proposal which had been made through Finance Bill, 2016 but removed due to the challenges of implementing it in cases where one person was involved in multiple transactions.

In the amended tax laws, the meaning of "winnings" are to be expanded to include winnings from betting, lotteries, gaming and prize competitions in addition to punters.

Being President Uhuru Kenyatta's final term, the budget is also expected to allocate sufficient funding for flagship projects like the SGR and a raft of other infrastructure projects started in the last five years.

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