Pain of new taxes be­ing felt across EA

This is com­ing at a time when it is hard to se­cure ex­ter­nal fund­ing

The East African - - NEWS -

Pic: File

A JOINT RE­PORT

Now, they are raid­ing their cit­i­zens' pock­ets to plug the ex­pected short­fall and de­liver on their prom­ises.

Kenya is al­ready find­ing it dif­fi­cult to fund the op­er­a­tions of its ex­panded gov­ern­ment, amid fall­ing rev­enue col­lec­tions, ris­ing pub­lic debt and an un­der­per­form­ing econ­omy.

On Tues­day, Kenyan leg­is­la­tors voted to re­duce this year's $30 bil­lion bud­get by $376 mil­lion af­ter it emerged that the coun­try will not col­lect enough rev­enues in an econ­omy that grew only 4.9 per cent in 2017, the slow­est in five years. This cut, how­ever, fell short of the $546 mil­lion that Na­tional Trea­sury Cab­i­net Sec­re­tary Henry Rotich had rec­om­mended.

On Thurs­day, leg­isltaors voted to in­tro­duce 8 per cent VAT on all oil prod­ucts, and Pres­i­dent Uhuru Keny­atta signed it into law the same day.

The coun­try's to­tal ex­pen­di­ture has been ris­ing over the past 10 years, from 22.3 per cent of GDP in the 2008/2009 fis­cal year to 27.5 per cent of GDP in 2016/2017. The sit­u­a­tion wors­ened af­ter it adopted a de­volved sys­tem of gov­ern­ment in the 2013/2014 fis­cal year. The de­volved sys­tem ush­ered in county gov­ern­ments and in­creased the num­ber of Mem­bers of Par­lia­ment to 418 from 222, among other con­sti­tu­tional of­fice hold­ers.

It is ar­gued that with Kenya's cur­rent rev­enue lev­els, and the in­creased spend­ing pres­sures as a re­sult of the de­volved sys- tem of gov­ern­ment, Trea­sury is fi­nan­cially con­strained and has to sur­vive on bor­row­ing.

Par­lia­ment has in the mean­time voted to cut spend­ing on in­fra­struc­ture projects such as roads to en­sure the gov­ern­ment sur­vives this rough patch.

An at­tempt by the gov­ern­ment to curb rev­enue leak­ages by abol­ish­ing and merg­ing poorly per­form­ing state cor­po­ra­tions was met with re­sis­tance, largely due to in­sti­tu­tional wran­gles, lack of po­lit­i­cal will and the Na­tional Trea­sury's un­will­ing­ness to take the lead in push­ing through the re­forms.

Kenya's 2018/2019 bud­get is 29 per cent more than the re­vised bud­get of the 2017/18 fis­cal year but a huge chunk of it — es­ti­mated at 25 per cent — is go­ing to­wards re­pay­ments of the na­tional debt, which is cur­rently es­ti­mated at Ksh5 tril­lion ($50 bil­lion), while nearly 50 per cent of this bud­get is ex­pected to go to­wards salaries for pub­lic of­fi­cers.

Ac­cord­ing to econ­o­mists at the Nairobi-based think tank In­sti­tute of Eco­nomic Af­fairs, Kenya's over­all rev­enue mo­bil­i­sa­tion in re­la­tion to tar­get has con­tin­ued to un­der­per­form largely due to a weak econ­omy. They raid the gov­ern­ment should en­force aus­ter­ity mea­sures to stem the in­creas­ing ex­pen­di­ture bill es­pe­cially the rise in re­cur­rent ex­pen­di­ture, in­clud­ing cut­ting non-core ex­pen­di­ture items such as travel and con­fer­ences.

“The gov­ern­ment should be wary of a sub­dued econ­omy. Rev­enue per­for­mance is strongly linked to eco­nomic growth and de­spite some pos­i­tive signs of eco­nomic re­bound there are a num­ber of pol­icy concerns that may af­fect eco­nomic growth and hence un­der­mine rev­enue col­lec­tion,” says the think tank.

It is feared that the sub­dued credit to the pri­vate sec­tor, es­pe­cially to the small- and medium-en­ter­prises, which is blamed on in­ter­est rate cap­ping, could sti­fle eco­nomic growth this year.

Kenya's eco­nomic growth also re­mains un­pre­dictable and may fur­ther be damp­ened by ex­ter­nal fac­tors such as ris­ing in­ter­na­tional oil prices.

Mr Rotich in­tro­duced new taxes in an ef­fort to fund his $30 bil­lion bud­get for the 2018/2019 fis­cal year, as the coun­try faced bud­get fi­nanc­ing chal­lenges, com­pounded by last week's ex­piry of an In­ter­na­tional Mon­e­tary Fund's $1.5 bil­lion stand-by loan fa­cil­ity for bal­ance of pay­ments sup­port.

The fis­cal deficit re­duc­tion tar­gets were set by the IMF when it granted a pre­cau­tion­ary credit deal two years ago.

Trea­sury had bud­geted for $347.74 mil­lion to be col­lected through a 16 per cent value added tax on all oil prod­ucts, but Pres­i­dent Uhuru Keny­atta

A devel­op­ment-cen­tred bud­get has en­abled Rwanda re­alise 26 per cent of the tar­gets stip­u­lated in its Vi­sion 2020.

Kenyans were this month hit with

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