Finance minister Uhuru Kenyatta yesterday walked a tightrope while presenting his Budget for 2011/12.
He had to fund increased government spending of Sh1.15 trillion while minimising the burden on Kenyans already reeling from difficult economic times.
In his delicate balancing act, he removed one nuisance from ordinary employees who only have one source of income by exempting them from the annual ritual of making annual tax returns and leaving the duty of filing PAYE returns to employers.
The budget maintained Value Added Tax at 16 percent pending the outcome of an ongoing review of the VAT regime.
Uhuru presented what is Kenya’s biggest budget yet focusing on food security, implementation of the new constitution and improvement of infrastructure as well as constituency development.
However he has a huge deficit to bridge.
With total expected receipts of Sh970.7 billion (including loans and grants), and total expenditures at Sh1.15 trillion, Uhuru is facing a deficit of Sh184.3 billion.
Uhuru allocated some Sh20 billion for implementing the new constitution; increased allocation to Constituency Development Funds to Sh17.2 billion; and provided close to Sh5 billion to constituencies under other votes.
Some Sh4.2 billion will be used to resettle the IDPs and Mau Forest evictees while Sh5 billion has been set aside for the 2012 general election.
“These measures are intended to promote economic growth, expand employment opportunities, reduce poverty, cushion our people against high commodity prices and simplify the tax system,” Uhuru said releasing the budget called “Building Resilience and Sustaining Inclusive Growth for a Prosperous Kenya.”
Faced with a shrinking tax collection base, Uhuru said he would increase withholding tax for consultants from 5 per cent to 10 per cent.
“It is the obligation for every person to pay his or her fair share of tax. However, it has been noted that some professionals are not paying taxes in accordance with their income,” he said.
In a move that will increase prices of the cheaper cigarettes and decrease the prices of the premium brands, Uhuru proposed to harmonise the excise duty regime for cigarettes at Sh1,200 per mille (1,000 sticks) or 35 per cent of the retail selling price, whichever is higher.
“The proposed regime will reduce incentives for substitution among different brands, in line with the public health objective of reducing tobacco consumption,” Uhuru said.
Jullie Owino, the BAT spokesperson, said they welcomed the move but were yet to calculate by how prices will increase. But Mastermind warned the move was counterproductive to the poor. “This is very bad message for the low income people,” said Mastermind’s spokesman Josh Kirimania.
Uhuru said he intends to harmonise the rates for beer at Sh70 per litre or 40 per cent of the retail selling price, whichever is higher.
“This will also address administrative challenges emanating from misclassification to reduce tax liability,” he said.
Tabitha Karanja, MD of Keroche Breweries, said the price of a beer will go up by not less than Sh5 as a result.
Uhuru abolished the filing of tax returns by employees who have no other income apart from their salary. The minister said the move would reduce unnecessary filing of tax returns as the Pay As You Earn taxes have already been paid by employers.
If you have not applied for a Personal Identification Number and have been frustrating Kenya Revenue Authority, the minister has proposed to amend the Income Tax Act to give the KRA commissioner powers to unilaterally register such taxpayers.
The minister said the law will be amended to allow Kenya to enter into Tax Information Exchange Agreements with other countries.
“Following recent financial crisis, it is important that countries safeguard their revenue base through sharing and coordination of tax information to avoid tax evasion,” he said.
Uhuru said, “all measures I am proposing herein and for which their effective date is immediate shall come in effect midnight tonight.”
To cushion the masses from high food and fuel prices, the minister said he was removing the import duty on maize for six months as well as the duty on imported wheat for one year starting.
Due to limited rice production, Uhuru said he would allow the importation of rice at 35 per cent duty instead of 75 per cent for one year.
And to ease the burden of high fuel prices, Uhuru proposed to completely remove excise duty on kerosene. And though taxes on petrol were not touched, a 25 per cent reduction on exercise duty on diesel was maintained.
He also cut import duty on food supplements from 25 per cent to 10 per cent and scrapped import duty on imported motorcycle ambulances.
For dairy farmers, the duty on imported animal feeds was reduced from 10 per cent to zero.
Buses used to ferry people at airports will be exempted from duty.
Security needs to be beefed up and therefore bomb detectors and CCTV cameras were exempted from import duty.
Source: www.nairobistar.com
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