The Kenya budget to be read Thursday March 30, will exclude taxation measures likely to distort trade in the East African Community before the other four partners make their proposals in June.

The National Treasury said it would issue policy measures and steer clear of customs-related taxes after the other EAC member states found it difficult to deviate from the budget calendar adopted under the EAC tax harmonisation initiative.  

“If you are doing something that changes taxes you have to announce it together but with policy issues the timing does not matter,” Geoffrey Mwau, the National Treasury’s director general in-charge of budget, fiscal and economic affairs told The East African.

Dr Mwau said partner states announcing their tax proposals separately would lead to business malpractices like hoarding and smuggling. Kenya, Rwanda, Tanzania and Uganda agreed a decade ago to be reading their budgets on the same day. Burundi, however, still reads its budget in December because its fiscal year follows the calendar year; the others from July to June.

Among the key taxes that businesses are waiting to see what direction the EAC will take are the Common External Tariffs on sensitive products like sugar, wheat, maize, rice, milk as well as textiles and leather.   

Kenya’s fiscal proposals for the 2017/18 financial year will be read almost three months ahead of schedule to fit in an electoral cycle stipulated in the Constitution that requires Parliament to be dissolved two months before the General Election.

The election will be held on August 8, meaning legislators must pass the Finance and Appropriation Bill before going on recess, unlocking spending for public institutions including the Independent Electoral and Boundaries Commission.

Tax experts said disclosing customs-related taxes ahead of its EAC counterparts would be detrimental to intra-EAC trade.

“This must be in respect of Customs.  The Cabinet Secretary may not announce rate changes but only announce policy changes in this area. One point is that we are expecting a new Income Tax Act so it is possible that there will be no measures announced on income tax,” said Nikhil Hira,a partner at tax and financial advisory firm Deloitte ConsultingEast Africa.

Customs duties include import or export duties and other charges levied on goods by virtue of their importation or exportation within the EAC partner states as opposed to domestic duties and taxes such as sales, turnover or consumption taxes.

Kenya’s budget comes on the backdrop of surging inflation, a ballooning public sector wage bill, deteriorating business environment and rising political temperatures that have prompted investors to halt their plans.

Tax experts said that the government faces an arduous task of collecting Ksh1.7 trillion ($17billion) of ordinary revenues  to finance part of the Ksh2.6 trillion($26 billion)  budget in an environment where economic activities have fallen to the bare  minimum and corporates are restructuring their businesses to survive.

“The major challenges facing the Treasury must be the high recurrent government expenditure and the fact that revenue collections are not keeping pace,” said Mr Hira.

He added: "As things currently stand, it is unlikely that the Kenya Revenue Authority (KRA) will meet its targets for this financial year.  This is probably attributed to an economy that is not doing as well as it might and generally lower activity as we approach the election.  When you add to that profit warnings, staff layoffs and lower consumer confidence, it is clear that revenue targets will not be met.  This of course means increased borrowing which may not be a good thing in the long run.”

According to Asif Chaudhry, a partner at the consultant firm PKF Kenya companies are struggling to sustain their businesses in Kenya.

“It is increasingly becoming difficult to do business in Kenya because of the level of corruption, the nature of the taxation regime and the complicated process of acquiring business permits. This is worrying,” said Mr Chaudhry.

Players in the horticulture sector expect the double taxation syndrome in the EAC region which has continued to undermine their businesses to be addressed.

“We are hopeful that double and multiplicity of taxes such as horticulture cess and affluent discharge will be rescinded,” chief executive, Kenya Flower Council (KFC), Jane Ngige.

James Mulili, senior manager, PKF Kenya said: "None of the EAC countries have double taxation agreement with each other.”

This year Kenya has increased its allocations to recurrent spending to 67.7 per cent of its Ksh2.6 trillion ($26 billion) budget from 62.4 per cent in the 2016/2017 budget in order to accommodate higher wages and allowances for civil servants. Half of the country’s revenues are consumed by salaries and allowances of public officials. The country’s public sector wage bill stands at Ksh627 billion ($6.27 billion) annually.