By James Anyanzwa
Kenya: The National Treasury has unveiled stringent taxation measures aimed at financing an ambitious Sh1.64 trillion spending plan for the 2013/2014 fiscal year.
The State declined to factor in proceeds from privatisation of State-owned corporations and the much anticipated $1 billion (Sh85 billion) sovereign bond.
The bond failed to take off due to political uncertainty, push for a new constitution and low global financial activities.
Cabinet Secretary Henry Rotich, however, said the new proposals would see landlords pay tax on their rental incomes.
Rotich also indicated that the enactment of the VAT Bill would generate an additional Sh10 billion to the exchequer.
It is feared an increase in taxation may have huge ramifications, lowering revenue collections.
“The Government remains committed to making it less costly to comply with taxes. In this regard, I will re-table the VAT Bill, which aims to simplify, modernise and reduce cost of compliance. The enactment of this bill will raise at least an additional Sh10 billion to the Exchequer,” said Rotich.
The Treasury is also targeting grants, commercial loans and domestic borrowing to finance an overall fiscal deficit of Sh329.7 billion (7.9 per cent of GDP). According to the Budget Statement unveiled yesterday, total revenue estimates for the fiscal year 2013/14 stands at Sh1.02 trillion, comprising of Sh961.3 billion of ordinary revenue, and Sh67 billion of appropriations-in aid. These represents an increase of 7.5 per cent over the revenue estimates for 2012/13.
With total expected receipts of Sh1.28 trillion (including loans and grants), the overall deficit amounts to Sh356.9 billion. However, excluding the domestic debt rollover of Sh126.1 billion from expenditures and reflecting external debt redemption of Sh88.6 billion as a financing item.
Total expenditure amounts to Sh1.42 trillion, thus giving rise to an overall fiscal deficit of Sh356.7 billion (7.9 per cent of GDP). “This will be financed by net foreign financing of Sh223.0 billion and Sh106.7 billion net borrowing from domestic market,” said Rotich. The Gross recurrent and development expenditures for the National Government during the 2013/2014 fiscal year are estimated at Sh955.5 billion and Sh447.9 billion respectively. However, Government’s heavy borrowing from the domestic market is usually associated with high interest rates. This crowds out the private sector from the debt market.
After failing to factor in proceeds of the $500 million (Sh42.5 billion) sovereign bond in the previous three budgets the Treasury has hinted at plans to issue the delayed Euro bond in the coming financial year.
Domestic market
This will aid it cut its borrowing from the domestic market and avoid crowding out the private sector.
As a result the Government has revived plans of raising $1 billion (Sh85 billion) from the international capital markets in the second half of this year, the amount doubles what was initially contemplated when the country started to consider issuing an international bond.
This comes against the backdrop of a positive outlook for the global economy, which faces fewer headwinds in 2013 compared with last year. It is likely to grow at a modest 3.5 percent, according to the International Monetary Fund .
The Government suspended its plans to borrow from the international markets through a sovereign bond issue because of the volatility in global economic environment.
The proceeds of the bond would also be used to repay a syndicated loan of a two-year $600 million from Citi Bank (London), Standard Bank (South Africa) and Standard Chartered Bank (London).
They were priced at 4.75 per cent per annum above LIBOR repayable from around mid 2014.
Treasury’s idea for a sovereign bond which has been in the pipeline for close to five years seeks to create more windows of opportunity for State-owned corporations and the country’s private sector players to access foreign funds at low cost.
In 2010 there were elaborate plans by the Government to raise Sh6 billion from privatisation programmes.
