Tax experts poke holes into Kenya's budget

Tuesday April 12 2022
Kenya's Finance CS Ukur Yatani holds up a briefcase containing the Government's 2022/23 Budget.

Kenya's Finance Cabinet Secretary Ukur Yatani holds up a briefcase containing the Government's Budget for the 2022/23 fiscal year, outside the parliament buildings in Nairobi on April 7, 2022. This year’s budget was supposed to improve livelihoods of Kenyans weighed down by a high cost of living. Instead, some experts think it missed the mark. PHOTO | SIMON MAINA | AFP


Kenya’s budget for the next financial year, which was tabled in parliament on Thursday, has no allocation that will address the most pressing issues to Kenyans in the short-term, auditors have warned.

Experts from audit and tax advisory firm KPMG said on Friday that although the budget heavily favours pro-poor sectors like education and healthcare, it did not pay attention to any measures that could solve current problems like the high cost of living and unemployment.

Stephen Ng’ang’a, Director of Tax at KPMG East Africa, said the budget failed to meet expectations in terms of addressing the underlying problems.

“In the short term, this year’s budget should have addressed the high levels of unemployment, rising public debt, income inequality, high cost of living, and agricultural challenges resulting from climate and environmental issues,” Mr Ng’ang’a said during a webinar.

Clive Akora, a tax Partner at KPMG East Africa, said the budget failed to consider several local and external risk factors that currently impact the economy.

“Uncertainties around the elections and the need to accommodate the manifestos of the next government could mean that the government might as well spend beyond budget in the next financial year,” Mr Akora said.


Stress vs collections

“There were also no considerations on potential re-emergence of Covid-19 variants as well as the impact of the Russia-Ukraine war,” he added.

According to the experts, the budget also failed to pay enough attention to the debt question, with over $7.4 billion of next financial year’s expenditure to be financed from debt.

“The country’s debt stress is set to rise over the next one year due to maturity of 25 percent of domestic debt, and increased exposure to foreign currency fluctuations,” Mr Akora said.

The auditors also flagged the Treasury’s proposal to change the debt ceiling from an absolute amount of Ksh9 trillion ($78 billion) to 55 percent of GDP, saying that GDP will keep growing and the country’s debt ceiling will therefore grow with it.

According to Mr Ng’ang’a, although the country’s revenue collection has always met budget projections, this year’s projection, which is a 21 percent rise from the current budget, is a little too ambitious and might not be met.

To properly balance between immediate and future needs, the budget ought to have paid more attention to manufacturing, agriculture, environment, and poverty reduction, the experts said.

In the next financial year, expenditure on education will be Ksh513 billion ($4.4 billion), more than twice the allocation during the FY2021/2022, while manufacturing got only Ksh10.1 billion ($87.5 million).

“This will not solve the unemployment (challenge). We might end up producing a lot of graduates, but they won’t get decent jobs because manufacturing sector is neglected,” said Vishal Soni, Financial Controller of Mombasa Cement Group.