A Retrospective Look at Kenya’s 2017/2018 Budget

A Retrospective Look at Kenya’s 2017/2018 Budget

A Retrospective Look at Kenya’s 2017/2018 Budget

By Winnie Chepkemoi

CS Henry Rotich poses before proceeding to the National Assembly to read the Budget Policy Statement.
Courtesy: The Star.

The theme of the 2017/2018 Budget Policy Statement, as presented in the National Assembly by the Cabinet Secretary in charge of The National Treasury, is “Creating Jobs, Delivering a Better Life for all Kenyans.” Following the address by The National Treasury CS, Mr. Henry K. Rotich on the 2017/2018 national budget, various remarks have been made on just how progressive or retrogressive the Kenyan economy is performing.  The interpretation of the above statement is directly dependent on how one was affected; either you were a “winner” or “loser” in the 2017/2018 Budget Policy Statement or on the perception one holds as far as the metrics of ascertaining economic growth are concerned.

An in-depth look at the 2017/18 budget clearly shows that key local and global factors shaped the budget-making process. These factors include:

  • The forthcoming general elections in Kenya.
  • The uncertainties surrounding the policy stance of the Trump administration and its global ramifications.
  • Britain’s vote in favor of leaving the European Union (Brexit).
  • The tightening of the US monetary policy and its implication on the global capital flows.

A deeper analysis of the budget reveals that the government has been pursuing expansionary fiscal policy largely due to:

  • The need to address the gap in infrastructural development
  • An increase in the human resource base and/or capacity contributed by the devolved system of government.

Overall expenditure in the 2017/18 budget is estimated to have gone up by 5.7% in relative terms, from the initial expenditure estimates of Ksh 2,500.9 billion in 2016/17 to Ksh 2,643.5 billion. To finance this budget, the government anticipates to collect revenue as well as to receive grants totaling to Ksh 1,763 billion, resulting in a deficit of Ksh 880.4 billion. The questions of concern are;

  • How will the Kenya Revenue Authority (KRA) meet the set revenue targets? Will it increase the tax base to include the informal sector which forms a larger proportion of the economy than the formal sector?
  • Are decisions on infrastructural investment being made before taking a look at how much finances are available? Should it not be the other way round where the government considers how much money is available in the economy then decide what to invest in? This will reduce the borrowing rate thus lowering the public debt level.
  • Should the focus be on investment-led economic growth or consumption-led economic growth? Which path has a long-lasting trickle-down effect?

The 2017/18 budget has been termed as a “poor man’s budget.” Is it that the ordinary Kenyans will benefit? If so, is it a long term benefit or a short term benefit considering that 2017 is an electioneering period? This is a fundamental question and concern that the policymakers need to critically think about. Yes, it is a big win to see VAT exemption on maize and wheat flour but we must be honest; even considering other past administrations similar policy measures were enacted but only as short-term safe-landing policy measures. Is the poor man really benefiting in the longer term? Did the government and policymakers have to wait till the election year to realize that we need a comprehensive policy framework to address common needs of the poor man?

There were winners and losers in the 2017/2018 budget. A clear look at this budget reveals the following as the key winners;

  • Employers who will facilitate the implementation of the apprenticeship policy as they will be offered tax incentives for them to increase the opportunities for the development of the skill-set for youths.
  • The construction industry following a reduction of corporate tax rate from 30% to 20% for developers who construct at least 1,000 units per year;
  • The low income earners following the raising of the lowest taxable income from Kshs.11, 135 to Kshs.13, 486 and the exemption from taxation the bonuses and overtime allowances that they receive.
  • Tax payers who own assets and businesses outside the country as they have been offered an extension on the tax amnesty provided they submit their returns for the year 2017;
  • The automotive industry as various tax incentives have been offered for the concerned investors following a proposal to reduce corporate tax from 30% to 15% for the first five years of their operation.
  • Older Kenyans/senior citizens aged over 70 years following the proposal to give them monthly stipends (Cash transfers) and NHIF cover.

The notable loser in the 2017/18 Budget Policy Statement is the betting, gambling and gaming industry. Lately, this has turned out to be a booming sector in which the relevant firms have been paying a flat tax rate of 7%. CS Henry Rotich proposed an increase in the tax rate for the firms in this industry from the current 7% to 50%, a move seen as a regulatory mechanism to make-up for the lack of effective regulatory framework within the industry which is believed to be leading to the loss of moral values among the youth.

The key concern here is if the Sin Tax will be more beneficial or costly in view of the government. Will the move transform the betting and gaming industry? Chances are betting activities may increase in the illegal, informal gambling and betting market segment. The concerned firms will opt to move out of the Kenyan market to other countries because locally the incentives would have diminished. Such a scenario will imply that the government will end up as the loser as the relocation of these firms will significantly reduce the amount of revenue the government collects from taxing the betting and gambling companies.

In conclusion, the 2017/2018 budget highlights various policy issues and policy proposals that are specifically geared towards creating jobs and a better life for all the Kenyan citizens but the policymakers in government ought to focus on the following questions:

  • How can we synchronize and integrate the county governments and the national government operations to have a significant structural re-adjustment in the taxation system so as to incorporate the informal industry/informal service sector to increase the revenue base of the country to reduce on the excessive borrowing?
  • How do we combine the investment-led growth pathway with the demographic dividend to establish a resilient economic trajectory?
  • Lastly, how do we ensure that the trickle- down effect is largely felt by the Kenyans at the lower end of the socio-economic stratum?

 

The writer is an Associate Partner and a Consultant on Research & Public Policy with Savic Consultants.

 

 

A good analytical dissection. It would be interesting to see whether the CS’s proposals are ratified by the National Assembly, especially bearing in mind the effects Betting firms have in local sponsorship deals in the sports industry. There was a review underway to raise the tax from 7% to the region of 13% with ongoing negotiations seemingly scuppered by the recommendations from treasury.

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