Budget measures that can put the economy back on track

Treasury CS Henry Rotich. [Standard]

The budgeting process of a country is supposed to reflect the nation’s economic growth and status - in light of the budget and projected growth vis a vis, the projected revenue collections.

The rate of growth of the revenues generated by the Government through taxes is slower than that of the government expenditure, which means the State is consistently living beyond its means.

Continuous replication of this situation leads to aggressive measures by the State in a bid to bridge the deficit through incremental taxes, domestic borrowing and external borrowing.

These actions combined, pile pressure on the economy, leading to increased interest rates and inflationary tendencies. This is due to the rising cost of products and restricted credit availability.

The Government should endeavour to strike a balance between its budget and the projected revenues to be collected so as to foster sustainable economic growth and development without disadvantaging the private sector, small and medium-sized enterprises and overburdening the current and future generations with expensive and unwarranted debt.

This can be achieved through minimising of recurrent expenditures, having a lean government, increasing accountability and investing in control systems that will curb graft.

The Government can adopt best practices such as forensic audits of the prior budget expenditure before approval of a new budget to check the viability of the repeat allocations and independent cost-benefit analysis of proposed projects in the budget to evaluate the actual value that ought to be created by such.

Taxpayers bracket

These measures should be undertaken before the same is ratified. This is in an effort not overburden the Kenyan taxpayers with projects that cost more than they yield.

The government needs to design a more effective tax system that will see the informal sector contribute their fair share of taxes.

The Kenyan formal employment accounts for about 12 per cent of the total population which forms the consistent taxpayers bracket.

The rest of the population is made up of people employed in the informal sector. In the recent past, the Kenya Revenue Authority has introduced presumptive tax which is seen as a move to capture the informal sector but it has faced challenges in terms of collection volumes.

One of the strategies that the State should consider in implementing is that the business permit and the presumptive tax applicable should be linked and automated system such that one cannot get the permit without paying the required tax.

Furthermore, increased efforts need to be placed on sensitising the public on how to pay the taxes and the benefits thereof.

This is without overemphasizing that the Government needs to have a zero tolerance policy on corruption so as to encourage tax compliance from its people.

Kenya is largely an agriculture-based economy and as such minimal value addition is done on the produce from the farms.

In essence, this denies the government revenue in the form of Value Added taxes which ought to have been applied on the processed products before they are available in the market.

With this in mind, the Government should come up with an industrialisation stimulus programme that will seek to support, encourage and stimulate industries across the country.

As a start, the Government can specifically focus on agricultural processing companies that will add value to the raw products that will be precisely targeted for export markets.

The State can also go an extra mile and secure markets for the products through bilateral agreements and export treaties that will seek to provide ready markets for our exports and inadvertently balance trade with the existing markets.

This way, the government will indirectly attain additional foreign capital inflows, employment, more taxes, and more sustainable and predictable growth trajectory.

Lastly, the Government should have a more predictable and stable tax regime i.e there is need to have consistency in the level of proposed tax changes in each budget cycle, have a one-stop-shop for automated business registration and all the tax requirements and an effective legal and judicial system.

All these, if attained to a greater extent will create an attractive and favourable business environment that would, in turn, attract increased foreign direct investment.

Everybody needs to play their part in building the nation.

The norm should be confronted for us to attain higher levels of economic development and efficiency.

 

-The writer is a tax consultant, PKF Kenya