What Wanjiku should expect from President’s final Budget

President Uhuru Kenyatta.

President Uhuru Kenyatta. The 2022/23 Budget is the last under the Jubilee administration and is an increase from the Sh3.1 trillion budget approved in June for the financial year 2021/22

Photo credit: Lucy Wanjiru | Nation Media Group

Expect minimal changes in new taxes and incentives, tax experts have predicted as National Treasury Cabinet Secretary Ukur Yatani reads the Budget statement in Parliament today (Thursday).

Mr Yatani will outline the priority spending areas of the Sh3.3 trillion Budget for the 2022/23 financial year and how it will be financed in a tough economic environment shaken by the lingering effects of Covid-19.

The Budget is the last under the Jubilee administration and is an increase from the Sh3.1 trillion budget approved in June for the financial year 2021/22. But what should consumers expect?

Tax expert Nikhil Hira, a partner at Kody Africa, says Kenyans should not expect many changes in tax laws given the complexity of this year’s Budget.

In a tight spot

He says that this being an election year, the government finds itself in a tight spot and has to carefully balance how to spend and how to raise revenues.

“During an election year, we tend not to see a lot of tax changes. The government is aware of the impact that tax measures can have on the cost of living,” said Mr Hira.

The National Treasury will have to grapple with delicately balancing a thin purse and many priority spending areas such as the third Economic Stimulus Package, the Big Four Agenda and cash transfer programmes such as Inua Jamii.

“How the government will juggle between revenue mobilisation, expenditure rationalisation, management of public debt and external factors outside their control [drought, Ukraine-Russia war, elections etc.] will be key to achieving sustainable economic recovery,” says Anthony Njeeh, senior manager for assurance at audit firm PwC Kenya.

New tax measures

This year’s Budget follows a raft of new tax measures introduced through the Finance Act, 2021, which had severe consequences on the cost of goods and services.

The government in July last year reintroduced a 16 per cent Value Added Tax (VAT) on liquefied petroleum gas (LPG), with prices rising to levels last seen more than seven years ago.

Mr Hira says the government has always rushed to introduce excise duty as a sure way of raising revenues on widely consumed products such as fuel, alcohol, water and juice. “But excise duty on these products has been increased many times in recent years, so I don’t think the government has the latitude to tax them more,” he said.

The Act also reintroduced excise duty on betting and gaming at 7.5 per cent of the amount staked, which will deter gamblers from placing stakes. The tax was initially introduced in 2019 and saw several betting firms pull out of the local market but was removed in July 2020 through the Finance Act, 2020. It also increased the excise duty on internet and telephone services from 15 to 20 per cent, which has raised the cost of airtime and loans, while imported furniture, eggs, potatoes and onions were also subjected to a 25 per cent excise duty.

Tough choices

Mr Hira said the government is faced with tough choices of financing the Budget, paying the rising debt obligations, and adhering to public finance management reforms fronted by the International Monetary Fund and World Bank. He said the government is likely to support crucial sectors hit hardest by the Covid-19 crisis, such as tourism and agriculture that are key to creating jobs and raising revenues.

“It will be keen not to introduce too many new taxes because they reduce consumption and, therefore, revenue collection. Traditionally, we also see the economy slow down during the election year, so you may not want to worsen the situation,” he said.

Consumers Federation of Kenya Secretary General Stephen Mutoro said consumers will be keen on legislation that touches on lowering the cost of commodities. He added that the government’s plan to put tolls on select roads and new ones built through public-private partnerships should raise concern.