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Hope and fear of captains of industry on the Sh3.66tr Budget

NATIONAL
By Economy Desk | June 9th 2021

Jacinta Waithera from NAS services serves tourists from Ukraine with welcome drinks popularly known as 'Madafu' at Moi International Airport.[Omondi Onyango,Standard]

At exactly 3pm tomorrow (Thursday), the Cabinet Secretary for the National Treasury Ukur Yatani will share with Kenyans the government’s taxation and spending plan for the next financial year.

In the next 12 months from July, the government will attempt to resuscitate a limping economy that has been battered by the Covid-19 pandemic. Much of this will depend on whether or not the government will implement its Budget proposals to the letter.

That is why there are mixed feelings on the Budget. Whereas there are those who have high expectations, there are also those who feel that the Budget is a business-as-usual Budget. 

The Standard spoke to the captains of the industry on their hopes and fears on the Budget for Financial Year 2021/22. 

Association of Kenya Insurers CEO, Tom Gichuhi

There is nothing new in the Budget, said Tom Gichuhi, the CEO of the Association of Kenya Insurers (AKI), a lobby for insurance companies. He described the changes made in the Insurance Act as “routine amendments.”

“All the proposals that we forwarded to Parliament were not picked. May be during the next Budget cycle, they will be adopted,” said Gichuhi.

Habil Olaka, CEO of Kenya Bankers Association

Habil Olaka, the CEO for Kenya Bankers Association (KBA), a lobby for lenders, says that the recovery of the economy is going to be driven largely by the private sector. And the private sector will be fueled by credit.

Olaka noted that although Yatani is faced with a tough balancing act, he will be expected to have a tone that that encourages banks to extend credit to the private sector.

“As you play the balancing act, don’t forget to create an enabling environment for banks to play their role,” said Olaka.

For example, having done a lot of weightlifting immediately the country recorded its first case of Covid-19 last year by giving tax relief, Olaka does not expect the government to again compete with the private sector for credit.

By reversing most of the measures, he said, the government has signaled that it can’t keep on supporting the economy. That role will not be left to the private sector, with firms taking loans to rebuild or start their businesses. This will then mean getting more people employed which will then translate into more money in the pockets of Kenyans. 

Dr Timothy Njagi, a research fellow at Tegemeo Institute 

Dr Timothy Njagi, a research fellow at Tegemeo Institute, noted that Treasury’s allocation to agriculture was low. He said the sector has always been an anchor for the economy, it proved critical last year when most of the other sectors suffered major declines. 

“The sector last year absorbed people coming from other sectors heavily affected by Covid-19. Most of the growth that we saw was because of more people coming in and working,” he said. 

“This was an opportunity to transform the sector. The fact that it absorbed more people, meant that in terms of transformation, there is a lot that could be done.

He added that the allocation to agriculture is still low compared to the recommended 10 per cent of its annual spending.

Agriculture has been allocated Sh63 billion, divided into crop development and research (Sh44.86 billion), fisheries, aquaculture and blue economy (Sh10.22 billion), livestock (Sh6.13 billion) and co-operatives (Sh1.59 billion). 

The allocation is about two per cent of the entire Budget. It fails to meet requirements of the Maputo Declaration in which African governments committed to allocate “at least 10 percent of national budgetary resources to agriculture and rural development”. 

Njagi noted that while counties allocated higher amounts at about six per cent of their spending to agriculture, this mostly went to payment of salaries. 

Richard Muteti, the Chief Executive Officer of the Kenya National Federation of Jua Kali Association

Richard Muteti says that the new Budget should focus a good deal of resources onto the jua kali industry, which has become a fortress for many people who have lost prime jobs in the last one year. 

According to him, the government should focus on improving worksites, making access to credit for the jua kali industry easy, and creating markets for the sector’s products — the three will mean a turnaround for a sector. 

“We have seen even pilots, lawyers and other professionals hawking goods. We should empower people at the bottom of the pyramid. It is this group that will cushion the economy,” he says. 

The Post Covid-19 Economic Recovery Strategy (ERS), which includes initiatives such as SMEs Credit Guarantee Scheme and Capacity Building programmes, will remain a pipedream if the execution is not done promptly, he says. 

“We have been talking about the ERS since 2010 and it has remained a story, and nothing more. There are so many academic papers done to this effect, but little to show for it. Shylocks have been benefitting off lack of affordable credit sources for the SMEs. The sector is tired,” said Muteti.

George Mburu, the CEO Mizizi Africa Homes

To improve affordability, the government should come up with ways of freeing up public land to private developers at subsidised cost or payable in a flexible long-term period. This will significantly reduce the cost of construction with the benefits set to trickle down to Kenyans and the prospective homeowners.

Similarly, on reducing construction costs, the government should review VAT on construction materials. Since its introduction early in the year, the cost of key building materials has risen significantly and stand in the way of delivering affordable houses. A downward review of the VAT or revoking it entirely is welcome. 

Mike Macharia, the Chief Executive Officer, Kenya Association of Hotel Keepers and Caterers (KAHC) 

The tourism industry has been one of the hardest hit by the coronavirus pandemic. This saw scores of hotels shut with their mainstay – tourism, events and conferences – drying up owing to travel restrictions and other measures meant to curb coronavirus spread. 

Mike Macharia, the chief executive of Kenya Association of Hotel Keepers and Caterers, said that last year’s stimulus package that was in the Budget bode well for the industry but it should be revised. 

“Last year’s stimulus packages really worked well and we are satisfied with what the government did. Unfortunately, most of the interventions lasted until December 2020 and it would be quite useful to extend them since the industry is still suffering.

“Our expectations would be a revision of the stimulus package, particularly an allocation for operational support. Last year we got Sh3 billion for renovations which was  utilised. So, one for operations support would be helpful,” said Macharia. 

He added that the government could further help by freezing new forms of taxes and levies such as the minimum tax, NHIF contribution and the reduction of PAYE to the 2020 levels.

Fiona Asonga, Chief Executive Officer of   Technology Service Providers Association of Kenya

Players in the ICT sector have called on the National Treasury to review the existing excise duty to reduce the cost of doing business and widen the tax base.  

According to Fiona Asonga, the chief executive of Technology Service Providers Association of Kenya, the current structure amounts to double taxation which increases the cost of doing business as well as pricing offered to end consumers.  

“Currently, we have excise taxes placed on every stage of the ICT value chain — from the hardware products to mobile data — and this increases the end products for consumers,” she explained.  

According to Ms Asonga, Kenya’s ICT sector is heavily taxed compared to other sectors, a factor that has seen some potential investors look to other countries like Rwanda. 

“There is a 16 per cent VAT, 1.5 per cent tax on internet data, excise duty on data and telephony at 15 per cent,” she explained.

Recently introduced levies like VAT and income taxes for digital service providers have also added to the tax burden experienced by operators in the sector.

“Prior to implementing the new digital tax, an ICT company is taxed about 92.5 per cent,” she states. “I have looked at this figure for the past few months and I am left wondering how am I supposed to run a business on 7.5 per cent of what I am churning.”  

According to Asonga, Treasury does not make matters easier by introducing new taxes without proper evaluation of how they will be administered.  

“We have learnt new words referring to things in the sector that we have not heard of before like ‘internet data tax’ where the taxman coins his own terms and expects that somehow industry will understand what they are referring to,” she said.

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