CS Henry Rotich to borrow Sh775b to plug deficit

Kenyans should expect fresh taxation pain as the Government plans to borrow heavily and raise taxes in the new financial year to finance the Sh2.27 trillion budget.

Details of the actual taxation plan will be revealed today when National Treasury Cabinet Secretary Henry Rotich will read his fourth budget statement that will guide the Kenya Revenue Authority (KRA) in collecting Sh1.5 trillion in the new financial year.

In the proposed budget, the Government plans to borrow Sh775 billion from both the domestic and international markets. A poll by Ipsos released yesterday, however, showed that majority of Kenyans are agains new taxation and instead want the Government to raise cash from elswhere— borrow from foreign or domestic markets.

Beer, cigarettes, motor vehicles and luxury items, alongside emerging sectors such as gambling, are the easy targets for the Government to raid taxpayers to raise its revenue. Property sales, banking and money transfer services are also possible targets.

To finance this year’s budget, the Government increased prices of basic commodities after it introduced Value Added Tax (TAX), a consumption tax that is levied on products at every point of sale.

Other possible targets include landlords and traders in the informal sector who have resisted previous attempts to bring them to the tax bracket.

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About 1,000 landlords had taken up the amnesty by KRA and volunteered to pay taxes in the first nine months of this year, a far cry from the 20,000 landlords the taxman was targetting in the nationwide campaign.

This means that the Treasury will have to devise new measures to go after landlords in today’s budget.

Balancing act

Mr Rotich will be walking a tightrope as he finds creative ways of raising the additional revenue needed to pay for the goodies the Government will dish out in the new financial year without falling out with the voting taxpayer.

The Jubilee administration has just about 14 months left in its last term of office, making the new budget its last kick in fulfilling its election promises.

The Treasury has already signalled an increase in taxation after it increased the taxman’s target by Sh300 billion in the new year that starts next month. KRA will now be expected to collect Sh1.5trillion, a 25 per cent increase from the Sh1.2 trillion this year.

Already the taxman is struggling to meet the current targets. KRA needed to collect Sh327 billion between April and end of June, a near impossible fete given its previous record.

The profit warnings and freezes in employment have made it harder for the taxman to raise new taxes.

The funding of the budget which will see the bulk of the billions spent on security, education and infrastructure for the third year running.

Kenyans should also expect their debt burden to rise one more time after the State indicated that it would continue with its borrowing spree to fund the growing budget deficit.

The Sh770 billion budget deficit will be financed by borrowing and grants.

Although the borrowing has been supported by the fact that most of the debts are being sunk into infrastructure, budget experts advising Parliament have accused the Government of lacking a proper policy on reducing debt.

The Parliamentary Budget Office, in its report that analysed today’s budget proposals, cautioned that even though borrowing is being used for development expenditure, the investment must be able to yield returns that far outweigh the cost of the loans.

“Is Kenya’s public investment producing assets? Over the period 2002/03-2014/15, the allocation towards development grew by 29 times in nominal terms. However, the rate of completion of projects has been very low,” the report notes.

It is estimated that as of June 2015, there were more than 1,000 projects which were classified as ongoing.

The estimated cost to complete these projects is estimated at Sh3 trillion.

It notes that in a country where cost overruns in project implementation is inevitable, it means the overall completion costs for these projects will be eventually be more than Sh3 trillion.

“The level of deficit shows direction of the country’s fiscal policy. If the set targets are continuously flouted, then predictability of the budget is compromised and effectiveness of the country’s deficit policies is diluted,” the Parliamentary Budget Office said in its analysis of today’s budget.