Uhuru stakes future on long-term plan

A lot of miscellaneous changes to taxes followed, some understandable, others, like reduction of duty on cosmetics and jewellery, just puzzling.

The exemption from value added tax of mobile telephones will have no effect on the prices.

Vendors will resist any pressure to pass on the “benefit” because of the various things they sell, cellphones will simply be one against which their overall input VAT cannot be offset. It would have been better to zero-rate them.

A surprisingly generous subsidy equal to 50 per cent of the cost of investment is now available to those setting up industries adjacent to Nairobi, Mombasa and Kisumu. This subsidy can only be collected if the enterprises make profits as it consists of a tax reduction.

Investors are more impressed by functioning infrastructure than by attractive tax regimes so it remains to be seen how well this will work. But it is certainly a major point worth considering when making up a business plan.

Tax loss carry-forwards are now limited to four years, which might be rather inequitable if the tax losses came about because of tax treatment of investment, allowances for example.

But the changed section also says that companies that can show good cause can have their tax losses extended for more than four years.

Players in capital markets will now have to take professional indemnity insurance in addition to meeting more stringent capitalisation requirements and contributing to the current investor compensation fund.

And perhaps in a move targeting the new money transfer services provided by mobile phone companies, all financial services are exempt from VAT in the way banks are exempt.

Horticultural exporters will be delighted to hear that in future they will be able to access zero-rated supplies and thus not have to chase refunds.

In a move that follows new initiatives by banks to “outsource” their operations, they will be officially allowed to do their business through agencies.

Insurance company ownership will be roughly similar to that in the banking industry — a maximum of 25 per cent per individual — directly or otherwise — and no individual holding more than 20 per cent will be able to run the company.

It was a good budget, not because it made a wide-ranging difference in the lives of Kenyans but because it stuck to the script and demonstrated a willingness to think long term — something for which we should be thankful.

Joe Gichuki is a partner with PKF Kenya. E-mail: jgichuki@ke.pkfea.com