Treasury Cabinet Secretary Henry Rotich will on Thursday, March 30 read Kenya’s national budget amid dim warnings of an economic slowdown in an election year.
It will be the Jubilee administration’s final budget for their first term, and it is these allocations that are expected to run the country until June next year when the next budget is read. The reading of the budget comes earlier than the traditional June date because the country is headed to the polls in August.
The budget reading will come against a backdrop of strong calls from the Parliamentary Budget Office (PBO) — the team of economists, tax experts and fiscal analysts who advise MPs on the budget — for Rotich to raid the Sh200 billion betting industry for increased revenues.
The House mandarins say the industry — which encompasses betting, gambling and lotteries — has lots of cash, yet attracts tax rates of between 12 and 20 per cent of total turnover.
They want this increased, and have asked the taxman to be aggressive in collecting the tax, the same way he collects “sin tax” from alcohol and cigarettes.
“In recent times, the gambling industry has experienced unrivaled growth, exponentially so, and the sustenance of this trajectory is expected. Therefore, tapping the unexploited tax potential from the multi-billion shilling betting, lotteries and gaming industry is long overdue,” the Budget Office said in a 62-page report that will guide MPs as they make budget allocations.
The forecast is that higher tax rates on betting will “more than double” the money that the Kenya Revenue Authority (KRA) makes from the betting, gaming and lottery industry.
“Currently, the industry is estimated to have a potential gross turnover of Sh200 billion annually and may grow more and more rapidly in the coming years. Taxation of this industry should be in the class of other sin taxes in design and rigor of collection,” the Budget office said in its report to MPs ahead of the reading of the budget.
KRA collected Sh4.7 billion from the gambling industry since 2014, and this financial year it is expected to rake in Sh3.4 billion. The House mandarins insist Rotich has to make “difficult decisions” to increase the tax rates on betting revenues, a move that MPs have been pushing and which the taxman has warned against.
There’s also worry over the elections, and the Budget Office has asked the National Treasury to only spend money on sectors that will boost the economic growth.
“To achieve higher growth targets, and to offset negative effects of political uncertainty, improvement of the agricultural and industrial sectors will be required,” the report titled ‘Turudi mashambani: kuna nafasi’ says. The last time such a call was made was just after independence — and the fact that it is being made now shows that the problems of hunger and unemployment still persist. Now, the economists believe, the basics of labour-intensive sectors such as agriculture will offer a solution.
The call to Rotich and the managers of the country’s economy is for them to marshal the political class to keep off inflammatory rhetoric before, during and after the elections. There’s also a call for the government to crack down on corruption, lest the cartels that surface at campaign time sink the economy.
“... the critical issue in 2017 is ensuring the election mood doesn’t lead to unnecessary conflicts and at the same time fostering transparency and accountability in the use of available public resources,” the House economists said.
It is like the country is banking on a credible poll to guide the economy, if the assessment of the PBO is to hold. “..the wait-and-see attitude by private investors will dampen the industrial sector. In addition the effect of the drought experienced in the first quarter of 2017 and which will have negative impact on agriculture is likely to dampen the growth prospects of 2017... management of a successful 2017 elections will play a key role the direction of the economy,” reads the report.
The PBO has also asked the National Treasury boss to pump more money to the counties and focus on irrigation projects, with a view to spurring agriculture in the face of drought. The rationale is that agriculture is “the backbone of the economy” and therefore the country had to “go back to the basics”.
“The clarion call Turudi mashambani: kuna nafasi means that we have to return to the basics and prioritise those sectors that would make everyone survive huko mashambani. Hard times requires difficult decisions and as has been stated elsewhere in this document budget is about making decisions that are costly and delaying making the decisions is even more costly. It means that the resource envelope outlined in the Budget Policy statement for 2017/18 and the medium term should be the basis for prioritisation and for tradeoffs to be made,” reads the report.
It added: “Agriculture is a backbone of the country’s economy and the county governments play a huge role in the management of agriculture. The sector is largely operated by the small-scale farmers who have insufficient technical know-how on modern agriculture technologies. Lack of adequate agricultural extension officers to assist the farmers has been a major contributor for this. Further, the poor storage facilities especially for perishable produces and inadequate agro-based industries to process these produces also contribute to the decline of agricultural activities. County governments should set aside funding for agricultural extension services and agro-processing industries”.
For that to happen, the PBO wants each of the 47 county governments to “identify a specific primary product that the county has a comparative advantage in production and specialise in it”.
Little economic returns
“The county can then invest in improving the product through targeted capital allocation, provision of technical assistance, value addition and marketing. Both levels of government may provide grants for the ‘one county one product’ initiative through annual budgets,” the PBO report notes.
The mandarins also mourn that the economy is “inefficient” because of “misallocation of resources to less productive sectors of the economy”. The bulk of development spending is usually spent on “purchase, construction or refurbishment of buildings including operational costs for such projects”.
“These are investments that may give very little economic returns if any. Furthermore, the ongoing huge infrastructure investments may not yield the high dividends envisaged, primarily due to existing inefficiencies in the implementation of the budget, procurement challenges, delays in completion and inflated costs.”