14 September 2018

Kenya: Uhuru Kenyatta's Statement On Fuel Tax, Budget Cuts

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Statement by President Uhuru Kenyatta on Finance Bill, 2018-19, as delivered at State House in Nairobi County

Fellow Kenyans, as your President, I have a constitutional duty to ensure that legislative instruments presented for my signature conform to our national aspirations, fulfil government's basic obligations to our people, and are implementable.

The Finance Bill 2018/19 brought to me yesterday fell short of this threshold. It protected the status quo and sacrificed the bigger vision. It took the easy path, instead of rising to the challenges of our time. It was good politics, but bad leadership.

As you might know, I returned it to Parliament with a number of modifications, designed to cure these shortcomings. The 2010 constitution widened Kenya's democratic space; it also fundamentally altered the structures and functions of government. With it, we have seen a substantial increase in political and bureaucratic representation at every level: we now have two houses of Parliament; the National Assembly has grown from 290 to 349 members; and our new Senate has 67 elected and nominated members. We also have forty-seven governors, forty-seven deputy governors, and forty-seven new county assemblies - in which sit more than a thousand MCAs.

Additionally, we have sixteen independent offices and commissions, excluding the judiciary. As you can see, the enjoyment of our new rights is expensive, unprecedentedly so.

We are very proud of the speed with which we have implemented the new constitution, and devolved government to the people. Having transferred over a trillion shillings to county governments since 2013, we have seen major improvements in service delivery, and improvements in the lives of Kenyans.

DEVOLUTION

That's why we will continue to protect and entrench devolution and the new constitutional order, notwithstanding the cost.

In addition to supporting devolution, your taxes have been used for an aggressive and successful development agenda.

Today, millions of Kenyans travel on new roads built by this administration; others are under construction. Millions of homes have been connected to electricity. Our mothers now have access to safer and cheaper maternal care.

In addition to free primary education, parents can now send their children to day secondary public schools, for free. Our investment in infrastructure is at its highest since independence. I wish to remind Kenyans that the MoU between Kenya and the United States of America for direct flights was signed in 2008; it is only now, after consistent investment in Jomo Kenyatta International airport under my administration, that the first direct flight to America is a reality.

And the Standard Gauge Railway has been nothing short of transformational. Built in record time, it has moved more than a million passengers, and hauled millions of tons of cargo.

On the social front, we have more than doubled the number of people with affordable access to healthcare under NHIF. In addition, vulnerable and elderly Kenyans - more than 700,000 of them - now receive monthly stipends. But all this costs money. Your taxes have paid for clear, tangible progress; this development trajectory will propel our country to new heights of prosperity.

VAT REFORMS

Funding devolution to the tune of over one trillion shillings since 2013 is a bold decision. Building ambitious rail and road infrastructure that is unparalleled in our region is bold. Fighting corruption and demolishing illegal structures is bold to some and unpopular to others. Initiating major social-protection programmes for our vulnerable and elderly is bold. All of this we have done without any substantial increase in taxes.

Now I will address the VAT on petroleum products. But before I do so, I want to mention two things. Reforms to VAT taxation were first introduced in the VAT Act of 2013. Under the transition arrangements passed by Parliament, certain goods including petroleum products were to be exempt from VAT, to allow for the gradual implementation of the new tax. This exemption was to expire in August 2016 but was extended for a further period of two years, to the end of August 2018.

The purpose of this tax was simple. We have to pay for the new constitutional order, and the public services on which Kenyans depend alike. These cost money. Further delay in the implementation of the tax would compromise our ability to deliver basic services to Kenyans, and to maintain the trajectory of our development.

Fellow Kenyans, I have spent the last few days listening to a wide cross-section of views. It is clear that you are all troubled by the effect of the rise in the prices of petroleum products, and its impact on the cost of living.

I have heard and understood your concerns, which is why I have proposed, as part of my memorandum, to cut VAT on petroleum products by 50 per cent -- from 16 per cent to eight per cent.

'PUTTING KENYANS FIRST'

Should Parliament accept this proposal, the price of super petrol will drop from KSh 127 to about KSh 118, and the price of diesel will drop from Sh115 to about Sh107. Just as business owners took the new VAT rate as an opportunity to increase the cost of goods and services, I expect them not to take advantage of weary citizens, and to lower their prices commensurately and without delay.

But we still face a financing gap. This measure will not suffice to balance our budget, as required by law. Therefore I have also proposed wide-ranging cuts in spending as well as austerity measures across all arms of government. The cuts target less essential spending, such as hospitality, foreign and domestic travel, training and seminars, and similar categories.

These budget cuts ask of us in government that we tighten our belts. It also ensures that the sacrifices made by tax-compliant Kenyans are matched by discipline from all of us in the public service.

I want to assure Kenyans that their taxes will be used well. That is why, in my memorandum, I propose to increase the resources available to the institutions entrusted to fight corruption. Specifically, I have increased funding to the judiciary to speed up the completion of cases concerning corruption and economic crime. Further, I have increased the allocation to the Office of the Director of Public Prosecution, and to the investigative agencies. I expect these bodies to work together to help us restore our faith in public institutions.

As President, it is my responsibility to put Kenyans first, those living today, and your children, who will inherit the country tomorrow. That means I must balance between short-term pain and long-term gain.

Fellow Kenyans, we have a country to transform, and we must make bold decisions to achieve our vision. I ask Kenyans to join hands and work together for us to achieve this common vision of a free, just, democratic society with long-term shared prosperity for all.

Thank you. God bless Kenya.

Kenya

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