Kenyan Treasury Cabinet Secretary Henry Rotich raided the wallets of the poor Thursday in a capitalist budget that will, for a good measure, be funded by caterers, security guards, gamblers and bodaboda operators.
Also feeling Mr Rotich’s tight squeeze are smokers and alcohol consumers, who, with the multibillion-shilling betting industry, attract sin taxes and are frequent victims of hikes on levies whenever the government is in a fix.
In a raft of painful measures that Mr Rotich defended as being aimed at “expanding the tax bracket”- which means plunging more people into the taxation pool — Treasury increased the rates of excise duty on cigarettes, wines and alcoholic spirits by 15 per cent. This means a bottle of wine and a packet of cigarette will now cost at least Sh18 and Sh8 more, respectively.
After the Sh18 adjustment, the total excise duty on a 750ml bottle of wine will now be Sh136 while duty on a bottle of whisky will go up by Sh24 to Sh182 for a similar bottle. Bigger quantities will attract more. The excise duty on a packet of 20 cigarettes will increase by Sh8 to Sh61 per packet.
In his 2019/20 Budget, themed ‘Creating Jobs, Transforming Lives: Harnessing the Big Four Plan’, Mr Rotich, however, protected banks and owners of capital, and shielded exporters, government suppliers, among other interest groups that run the economy.
But he had more painful news for the rest of the population. For instance, it will cost more to dispose of property in the coming year as those who want to sell their properties will have to pay a capital gains tax of 12.5 per cent, up from 5 per cent. A capital gains tax is charged on the difference between how much one bought the property and how much they are selling it at.
But Mr Rotich saw it as a positive measure, especially for corporate entities, whom, he said, will have a chance to “restructure their operations for efficiency and market penetration” as a result of the higher tax.
The Treasury also imposed withholding taxes on people who offer security, cleaning and fumigation, and catering services outside hotel premises, as well as transporters of goods, excluding air transport services, sales promotion, marketing and advertising services.
Until now, only professionals who charged management and professional fees were being charged withholding taxes, at a rate of five per cent. This means that, for every Sh10,000 earned by these professionals, Sh500 will be remitted to KRA upfront on or before the 20th day of the following month.
“This measure will enhance tax compliance by persons offering these services,” Mr Rotich noted.
Also, the youth, who are making money from the digital economy, will no longer live outside the tax dragnet. Mr Rotich proposed measures “that are aimed at providing the platform for taxation of income generated from the digital economy so as to boost our revenues for inclusive economic development”. He, however, did not reveal how he will go after them.
The Treasury CS said he expected the new taxes to generate an additional Sh37 billion.
However, it was not all doom and gloom in Mr Rotich’s speech to the nation at Parliament Buildings in Nairobi Thursday. Some of those who will have it easy, going forward, at least for the next one year, are entrepreneurs owed money by the government as the Treasury said it had allocated Sh10.9 billion to pay verified pending bills by the end of this month.
Local motor vehicle assemblers were also big winners as Mr Rotich announced that, from July 1, all public entities will give them exclusive preference in the procurement of motor vehicles and motorcycles.
The jobless also received a Sh1 billion boost that will go towards the Ajira Digital Programme Fund. They, however, will be required to pay a Sh10,000 registration fee to join the freelance programme.
The Treasury also made another attempt at dealing with the accumulation of Value Added Tax refunds at KRA arising from levies on zero-rated supplies, which, Mr Rotich said, had negatively affected the cash flow and liquidity of manufacturers, and the business community at large.
In order to speed up the return of these funds to the rightful owners, he said, “I have constituted a team at the National Treasury to quickly validate the outstanding refunds with a view to clearing them within the next two months.”
The CS also moved to stop excessive expenditure on leasing of government office space. From July, all procurement of office accommodation by the government will be standardised with uniform cost leases. Existing contracts will be renegotiated to ensure a standard rate. The Treasury expects to collect a total of Sh2.1 trillion in internal revenue, while the projected expenditures are Sh2.8 trillion. This leaves Mr Rotich with the headache of Sh607.8 billion deficit, which, he said, will be funded by net external financing of Sh324.3 billion and net domestic financing of Sh283.5 billion.
Other winners are assemblers of electronics and computers after Mr Rotich proposed to exempt from VAT locally manufactured motherboards and all inputs used in their manufacture. He hopes the measure will make them more competitive against imported motherboards.
And, in an effort to attract investors in the plastic recycling industry, the Treasury also exempted from VAT all services offered to plastic recycling plants and supply of machinery and equipment used in the construction of these plants. It also cut corporation tax to 15 per cent for the first five years for any investor operating a plastic recycling plant. Importers of raw timber, however, have something to smile about after Mr Rotich abolished import duty on raw timber, currently charged at 10 per cent.
Gamblers were also hard-hit, and Mr Rotich explained that the practice had become widespread and its expansion has had negative social effects, particularly on youth.
“In order to curtail the negative effects arising from betting activities, I propose to introduce excise duty on betting at the rate of 10 per cent of the amount staked,” he said. This means that if you were to place a bet of Sh100, you will be charged Sh10 immediately you place your bet, no matter the outcome. Should one win, then one will be expected to pay another tax.
In a measure aimed at encouraging the uptake of electric cars, Mr Rotich slashed excise duty on motor vehicles that are fully powered by electricity to 10 per cent.
Boda boda operators, who have been accused of recklessness, will now have to get comprehensive insurance cover, which promises to mint for insurance companies billions of shillings in premiums.
He said the mode of transport has proven to be very risky to the riders, their passengers and pedestrians. He said accident victims, are left to seek financial assistance for treatment from friends and relatives since the boda bodas are not insured.