The Standard Chartered Bank Of Kenya (SCB) this morning held panel discussions to share their analysis of the 2019-2020 budget, with clients.
The Kenya 2019-2020 budget was presented yesterday to parliament by the Cabinet Secretary for National Treasury Henry Rotich.
The chief financial officer (CFO) for SCB Ms. Chemutai Murgor started the meeting by welcoming the guests and outlining the meeting’s agenda.
Below are the take aways:
Eva Otieno, SCB’s Head of Africa Strategy Research had the following to say.
In 2018 we’ve seen the 6.3% economic growth. We attribute that to the the increased reliance on the agricultural sector.
Looking at the budget, we see continued spending. In an environment where the private sector is struggling, we see a disconnect between the projected revenue to be raised and the ability of the main tax paying contributors to meet it.
The Kenyan shilling has been so stable due to the current account deficit narrowing. There is a material slowdown in imports.
When we look at the FX reserves, we are looking at over 10 billion due to the Eurobond proceeds that have come through.
Michael Mburugu, Partner at PKF Kenya, (also the Director of Taxation services, said the following:
Taxation of the digital economy is targeting main non-residents who would benefit from such revenues.
The govt. has reintroduced the turnover tax at 5%, replacing the presumptive tax.
In may cases the farmers are not remitting taxes. To expand the tax base the govt has lumped informal service providers together by introducing a withholding tax.
On the VAT side, withholding VAT has reduced from 6% to 2%.
Exemption of VAT for people who will be recycling plastic materials.
Reverse VAT has been reinstated for people who are not registered for tax purposes.
VAT has been introduced on ecommerce.
With the new VAT formula it is possible, especially for exporters, that they may get back 100% of their VAT back.
10% of all bets placed will go to the govt in taxes in addition the taxes to betting companies.
To encourage locally assembled vehicles, there is a higher tax on imported vehicles.
Taxes on cigarettes, wine and spirits are up by approximately 15%.
If you are a senior officer/executive and you want to go on holiday, you may find that you are prohibited to leave the country if your company is not tax compliant.
Anytime you are in a dispute with the Commissioner, if the case takes over 60 days, then the assumption is that you have won the case.
For wheat and grain, duty has come form 35% to 10%.
Duty on rice is down form 75% to 35% for food security reasons.
Salim Aliban, from PKF Kenya has this to say:
Boda bodas and Tuk tuks are now required to get insurance for themselves and pedestrians.
The Capital Markets Authority has been given more authority to deal with non-complaint companies.
Pensioners will now get part of the reserves of their scheme when the exit it.
Pensioner under umbrella medical schemes will now have additional access to coverage.
Due to the emphasis of Buy Kenya, build Kenya, all government vehicles will be procured from plants in Kenya.
Single use plastic good will be banned from conservation areas and beaches.
The panel was made up of Tanveer Nandhra, Head of Finacial Markets, SCB (moderator), Ndegwa Mucheru, Head of Tax, Africa, SCB, Michael Mburugu, PFK Kenya, and Eva Otieno, Africa Strategy Research, SCB.
The government is listening to what industry has been asking for to drive the economy and making changes, e.g. issuing pin, locally assembled vehicles.
We’ve seen the rates of fiscal consolidation deteriorate.
We need to consider the issue of corruption as it has a real effect on our economy.
The allocation of the 47 Billion to healthcare is a step in the right direction.
We have an initiative called #Futuremakers, to empower young people in areas of employability and entrepreneurship. It is aligned with the govt’s efforts to engage youth and create opportunities for personal economic growth . – Susan Njoroge, Head of Sustainability, SCB
The budget formulation used to be a very opaque process. Now however the budget estimates are published in April and the public can comment. That is the spirit of the constitution .
Whereas the framework has been put in place to tax the digital economy, it needs to be fine tuned. How do you tax, especially when the payments are being remitted outside of the country? Who has the taxing rights, Kenya or the hosting country.
For local industries that have experienced punitive tax raises (e.g. tax on paper up from 10%-25%), short term effect may be painful, but in the long term, as other local support industries are established, the cost of doing business may reduce.
‘The government may have missed the opportunity to provide economic stimulus for the next 3 years to get the economy back on its feet. If local businesses had been given an amnesty this may have resulted in more SMEs getting compliant’, said Michael Mburugu, PKF Kenya
The panel discussions ended after one and half hours with Eva Otieno having to day this, ‘Since 20% of the allocations went towards the big 4, it is incumbent on the public to hold our officials to greater account in the use of these funds’.