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Treasury CS Rotich dispenses bitter pill for cash-strapped economy

By Paul Wafula | Published Fri, June 15th 2018 at 00:00, Updated June 15th 2018 at 14:41 GMT +3
2018 budget Cabinet Secretary for the National Treasury and Planning, Mr. Henry Rotich at treasury with the budget briefcase at the treasury building on 14th June 2018. [David Gichuru, Standard]

In summary

  • Kenya’s most painful budget as minister announces new spending plan
  • Desperate underbelly of a government short of cash seen in Kenya’s most painful budget
  • CS hits small businesses and startups, insurers, importers, exporters and gamblers

It will be the toughest year for Kenyans after Treasury slapped the poor and raided the rich with wide ranging taxes to fund its ambitious budget.

Almost no one will be spared in the new tax measures that have revealed the soft underbelly of a government desperate and short of cash.

Treasury Cabinet Secretary Henry Rotich hit small businesses and startups, insurance firms, importers, exporters, fuel consumers, gamblers and regulators, among others.

In his budget statement, Mr Rotich spared the big earning corporations from the 35 per cent tax and allowed Kenyans abroad who wish to bring money stashed in foreign banks back to the country to do so without being asked its source as he tried to encourage them to take up the tax amnesty he gave last year.

Punitive penalty

The taxman was empowered to go after regulators who failed to submit their surplus on time and impose a punitive 20 per cent penalty on firms who delay in remitting taxes on top of interest charges, revealing the desperate situation the Government is in that wants taxes now and on time. 

Small businesses who have evaded the taxman for decades will now have to pay a 15 per cent tax on their licences before they start operations.

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Importers of iron, steel products, paper and paper board, textile (mitumba) and footwear, plywoods, block boards and vegetable oils will now pay import duties at a rate of 35 per cent.

Those who love sweets and chocolates will now pay at least Sh20 per kilogramme.

Sending money on mobile phones will be more expensive after Rotich raised excise taxes from 10 per cent to 12 per cent, going after the billions in the mobile money transfer industry.  

Also to face the music in the budget themed Creating jobs, Transforming Lives and Sharing Prosperity – “The Big Four” Plan will be the rich and those who have extravagant tastes for fuel guzzlers and finer things in life.

Investors in private passenger motor vehicles whose engine capacity exceeds 2500cc for diesel and 3000cc for petrol-powered vehicles will now pay a 30 per cent excise duty.

Sending money through banks will also be costlier. Rotich imposed a 0.05per cent excise duty of on any transfer of amounts of Sh500,000 or more by banks or financial providers.  

There will now be a withholding tax rate of 20 per cent charged for payments for demurrage charges made to non-resident persons.

The Government also introduced capital gains tax of 5 per cent on transfer of property by general insurance companies and a withholding tax rate of 5 per cent on insurance premium paid to non-residents, excluding for insurance of aircraft.

The Treasury has also introduced an export levy of 20 per cent on copper waste and scrap to protect local manufacturers, in a shift that will now see exporters start paying taxes.

Total spending will increase from Sh2.3 trillion in 2017-18 to Sh2.5 trillion in 2018/19.

Rotich allocated around Sh460 billion to “The Big Four” sector drivers and their enabling sectors.

The Government set aside Sh1.4 billion for the strategic food reserves, Sh1.9 billion for the Kenya Cereal Enhancement Programme, Sh500 million for mechanisation of agriculture while crop diversification got Sh900 million.

Banks appeared to have gotten their way after Rotich sneaked through the back door measures that will now water down the interest rate caps, which he said had slowed down the economy.

Another Sh8.5 billion was allocated for ongoing irrigation projects in Bura and Mwea, National Expanded Irrigation Programme and Smallholder Irrigation Programme, Galana Kulalu, Turkana and micro-irrigation in schools.

Fertiliser subsidies got Sh4.3 billion while crop insurance received Sh300 million in order to cushion farmers against climate-related risks. The fight against army warm invasion got Sh300million.

To expand access to affordable healthcare, the Treasury allocated Sh2 billion for Free Primary Healthcare, Sh800 million for Health Insurance Subsidy Programme (Elderly & Disabled), and Sh2.5 billion will be used for the rollout of universal health coverage to four counties on a pilot basis.

The Free Maternal Healthcare programme and leasing of medical equipment got Sh13.7 billion.

The Treasury allocated Sh7 billion for leasing of Computed Tomography Scanners Equipment, which will help diagnose the disease at early stages and curb cancer deaths. Another Sh400 million will be used for the establishment of Cancer Institute.

Health boost

Allocations to improve health service delivery include Sh2.9 billion for doctors, clinical officers, nurse’s internship programme, Sh11.7 billion for Kenyatta National Hospital, Sh7.7 billion for Moi Teaching and Referral Hospital, Sh2.2 billion for Kenya Medical Research Institute while the Kenya Medical Training Centres (KMTC) will receive Sh4.7 billion.

To roll out the housing programme, Rotich set aside Sh3 billion for construction of affordable or social housing units by the Government and Sh1.5 billion for construction of housing units for police and prison officers.

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