East African budgets tabled in parliaments
KENYA, Rwanda, Tanzania and Uganda presented their 2015-16 budgets on 11 June. As foreshadowed by the budget reviews earlier this year, the budgets all reflect increases from the 2014-15 year.
The Kenyan fiscal budget is forecasted at KES2.1-trillion ($22bn) and the economy is expected to grow by between 6.5% and 7% in 2015-16. The total revenue collection by the Kenya Revenue Authority is expected to increase to KES1.358trillion. In line with Kenya’s Medium Term Plan II, which identifies energy and infrastructure as key enablers for sustained economic growth, more than KES330bn has been allocated to infrastructure projects. In order to contribute to their financing, the government is exploring privatepublic partnerships (PPS), especially focused on roads, electricity generation and the construction of university hostels. The completion of the Standard Gauge Railway, linking Mombasa to the mainland and other East African countries is to be accelerated to 2017.
Significant proposed tax amendments include an increase in the carry forward period for tax losses from four to 10 years and an exemption from the previous 20% withholding tax for foreign actors and film crews. Non-resident mining sub-contractors will now be subject to a final 5.625% withholding tax on gross service fees, whereas training fees paid by petroleum or mining companies to non-resident entities will be subject to a rate of 12.5%.
In order to address the administrative complexities around calculating capital gains on the sale of shares, it is proposed to levy capital gains tax through a withholding mechanism at a rate of 0.3% on the transaction proceeds of the sale of listed shares. Landlords earning less than KES10m from the rental of residential property are to pay a final withholding tax of 12% on the gross rental value.
Rwanda’s budget for 2015-16 is projected at Rwandan francs (RWF) 1.768-trillion ($2.58bn), reflecting an increase of RWF5.9bn on the 201415 revised budget. It was announced that in 2015-16 the government will focus on implementing aggressive reforms to address vulnerability of agricultural production and ensure fast implementation of private and public industrial projects. Economic growth is expected at 6.5% in 2015-16, down from 2014’s 7%.
The budget to be funded by projected domestic revenue collections of RWF1,038.1bn (RWF938.6bn from tax revenue). It is expected that donor support grants will continue to decline from 7.3% in 2014-15 to 5.7% in 2015-16 and to 4.6% in 2016-17.
Rwanda is currently undergoing comprehensive tax reforms so no significant amendments were announced. However, a 1.5% infrastructure development levy has been introduced on all goods imported from outside the East African Community in order to finance infrastructure projects.
The 2015-16 Ugandan budget is estimated at Uganda shillings (UGX) 23.972-trillion ($8bn). Finance Minister Matia Kasaija announced that the economy is expected to grow at 5.8% during the next fiscal year, as compared to 5.3% in 201415. Domestic revenues are expected to increase to UGX11,333bn from UGX9,799bn in 2014-15, with tax collection projected at UGX9,577bn.
The government intends to continue its focus on infrastructure investment, which will enhance regional integration and develop Uganda’s oil sector.
Kasaija said that the successful completion of the National Identification Project, allowing for the sharing of information by government departments, agencies, ministries, and local governments with the Uganda Revenue Authority, is fundamental in supporting the tax administration.
The VAT threshold (UGX50m since 1997) is to be revised to UGX150m. The threshold for using a cash basis of accounting for VAT purposes is to be increased from UGX200m to UGX500m.
The thin capitalisation rules have been amended to allow firms to deduct interest on loans if the loans do not exceed their share capital by 150%. Thin capitalisation rules have also been extended to branches of non-resident companies. Services rendered by a non-resident for a period exceeding 90 days in a 12month period is to be included in the definition of “branch” as per the Income Tax Act.
The withholding tax on reinsurance premiums, which was introduced at 15% in July 2014, has been reduced to 5%.
In an attempt to bring informal businesses into the tax net, taxpayers will not be allowed to claim a tax deduction in respect of amounts exceeding UGX5m incurred on goods or services acquired from suppliers without a valid tax identification number.
The Tanzanian budget for 201516 was increased from Tanzanian shillings (TZS) 19.8-trillion in 201415 to TZS22.495- trillion ($10bn). A growth rate of 7.2% is forecast for 2015-16 and the revenue authority is expected to collect tax revenue of TZS12,363bn, with non-tax revenue estimated at TZS13,475.6bn.
Tax proposals aimed at improving revenue collection include elimination of discretionary tax exemptions (with the exception of strategic investors) and improving the business climate to attract informal businesses to formalise their operations.
The marginal tax rate for individuals has been reduced by from 12% to 11% on the lowest tax band (monthly income from TZS170,000 to TZS360,000). Gaming prize winners are to be taxed at 18% on the prize received.
Income earned on bonds issued by the East African Development Bank in the Tanzania domestic market is to be exempt from tax, whereas government projects financed through commercial loans will no longer be exempt from income tax with effect from 1 July.
Special strategic investment status is to be granted to investors who invest at least $300m (in cash or assets), employ at least 1,500 Tanzanians and generate foreign exchange or reduce importation.
Economic growth and improved tax collection a major focus
Celia Becker is an Africa Regulatory and Business Intelligence executive at ENSafrica.