World Bank proposes more budget cuts in Kenya to seal deficit
SEE ALSO :Fight on climate change gets Sh2bThe Kenya Meat Commission is the largest debtor with Sh940 million in non-performing loans, while sugar millers Sony and Nzoia, owe the Government Sh199 million and Sh168 million respectively. In 2013, President Uhuru promised to initiate a parastatal review process targeting moribund institutions and those whose functions had been devolved and merge duplicated public agencies. This has not been achieved, with recommendations of a 10-member task-force appointed to lead the reforms now gathering dust. This year’s World Bank economic update comes on the back of increased pressure on the Kenya Revenue Authority (KRA) to broaden the tax base and increase revenue collection to fill a budget gap of Sh600 billion. According to the Bank, revenue mobilisation as a share of gross domestic product (GDP), fell to a 10-year low, settling at 15.4 per cent of GDP in the last financial year compared to 17.1 per cent in a similar period last year.
SEE ALSO :World Bank projects unveiled“This is attributed to under-performance in both income tax and VAT – Kenya’s largest sources of tax revenue, accounting for over 70 per cent of tax revenue,” said the report. This means Treasury and KRA are making little headway in broadening the tax base and the taxman is relying on the same economic sectors to generate revenue. “Kenya’s GDP is increasing and naturally you would think that the taxes will also grow in proportion to it, but what we have seen in the past couple of years is that this relationship is becoming weaker than it should be,” said World Bank economist for Kenya Allen Denise. As part of bolstering the country’s purse strings, the Government introduced a raft of tax measures in the Finance Bill, 2018 that saw new excise duty levied on Internet data, a doubling of excise levy on bank charges and an eight per cent Value Added Tax introduced on fuel and fuel products. In addition to these measures, the Government has been advised to enhance interconnection between Government data management systems such as IFMIS with KRA’s iTAX. “For example, implementing Geocris, a system that uses geo-spatial technology to locate property, could help boost real estate taxes, and a wider rollout of the electronic cargo tracking system could boost VAT and customs duties,” said the World Bank. The bank, however, said fiscal consolidation is gathering pace with the overall fiscal deficit decreasing by 2.2 percentage points to 6.9 per cent of GDP, the fastest in five years. At the same time, a rebound in the agricultural and manufacturing sectors and uptake in private sector investment is expected to stimulate economic growth. “Reflecting improved rains, better business sentiment and easing of political uncertainty, real GDP growth is estimated to rebound from 4.9 per cent in 2017 to 5.7 per cent in 2018 and rise gradually to six per cent by 2020 as the output gap closes,” said the World Bank. Revenue mobilisation and cuts to public spending however remain necessary if the country is to achieve macroeconomic stability and help the Government marshal resources to fund the Big Four Agenda.
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