The 2019/20 Budget speech sounds innocent on its face value, but a deeper analysis of the same reveals a massive deceit by a government to its own people.
First, the reduction of the withholding VAT from 6% to 2% does not lead to a reduction of the 16% VAT impact- it’s just a collection method – its inclusion in the first few sentences of the budget statement is plainly populist and was meant to make the government look good in the eyes of the unsuspecting mwananchi who is not savvy on tax technicalities.
Secondly, the 10% tax on betting will hit the very poor segment of the society as they comprise the biggest number of the betting population.
Third, raising of capital gains tax to 12.5% from 5% equally hits poor families who have held assets for a long time.
Capital gains tax is not applicable to the real estate players as theirs is considered to be normal business income subject to a corporate tax.
Fourth, increase of import duty on certain motor vehicles is meant to favor locally assembled new cars.
This will affect the poor more since they cannot afford brand new cars and as a matter of fact, most of the public transport vehicles are second hand imports- the car owners will definitely pass the additional cost to commuters.
Fifth, the reintroduction of reverse VAT I to non-registered VAT taxpayers will be like a punishment since the key principle in VAT is not to levy VAT on services from abroad.
Sixth, the tax amnesty provided to Small and Medium Enterprises (SMEs)who list in the Growth Enterprise Market Segment (GEMS) of the Nairobi Securities Exchange (NSE) is mis-advised since its targeted at very few entities.
The NSE is not an ordinary market place hence the beneficiaries of this amnesty will be very few, if any. The amnesty should have been open to all businesses who wish to take advantage of a voluntary disclosure scheme. The last broad local amnesty was in 2003/2004.
In his speech, the CS pronounced an exemption regime for VAT purposes for a number of essential items.
Technically, VAT exemption leads to higher shelf prices since manufacturers are not able to claim back their input VAT. Zero rating such essential commodities is preferred as the manufacturers are able to claim back input VAT, hence lower shelf prices.
The much talked about Big Four Agenda projects got a bigger allocation but the CS did not provide a clear road map on implementation- these projects have become corruption swamps and are likely to be another era of white elephants.
Whereas the CS pronounced measures targeted at addressing the rising national debt burden, it is not clear how he is going to fund the Ksh3 trillion budget in an environment of economic decline – one can only assume he is likely to borrow a lot more.
Kenya’s economy is anchored on agriculture. The CS seemed to give very little attention to this sector – if anything, he only allocated the traditional funds for sugar, coffee, miraa and other few areas – the impact of these funds has never been felt over the years.
However, on the brighter side, the CS made a few changes which are likely to have a positive impact on the mwananchi and businesses.
A sizable allocation towards Universal Health Care (UHC) is laudable in the sense that a country requires a healthy population to thrive.
Similarly, a good amount was allocated for security – this cannot be overemphasized in the face of terror threats posed by the instability in Somalia.
The Budget statement has left a lukewarm trail and Kenyans must surely tighten their belts in the coming days.
I hope that the National Assembly will reverse some of the punitive taxes introduced to save the very common man they represent.
MICHAEL MBURUGU is a taxation expert and a partner at financial services consulting firm PKF. The opinion expressed is personal