Tough economic time looms for Kenyans

June 14, 2013
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National Treasury Secretary Henry Rotich delivered the Budget statement on Thursday. Photo/ MIKE KARIUKI
National Treasury Secretary Henry Rotich delivered the Budget statement on Thursday. Photo/ MIKE KARIUKI

, NAIROBI, Kenya, Jun 14 – Kenyans will have to brace themselves for tough times ahead as cost of basic goods will likely go up in an effort to raise revenue to fund the 2013-2014 budget.

Taxation Services Director at PKF John Thindi says this will be through direct and indirect taxing of the basic goods and food items to fund the Sh1.6 trillion budget.

The reintroduction of Value Added Tax (VAT) Bill, he says, will definitely see the prices of key food items, like wheat, maize, bread and milk go up by 16 percent.

“Our Cabinet Secretary Henry Rotich put it like there will be no price increase of goods. But where do you expect him to raise Sh961 billion revenue? There is just a proactive decision to raise prices of commodities directly through the introduction of VAT to some of these commodities,” Thindi said.

“With the VAT Bill coming back, the National Treasury targets to get over Sh10 billion; where will this money come from? I think he was a bit hypocritical on this,” he argued.

The National Treasury he says, may focus on some of household goods because they are the most consumed by Kenyans hence raise quick revenue.

“You see, the prices will not just increase because of direct VAT, other parameters will also contribute. For example if fuel goes up, that means electricity will also go up, then the cost of production rises hence the high cost of these goods. It is like a chain,” he lamented.

The National Treasury also announced plans to introduce a 1.5 percent duty imposed on all imported goods to collect funds for the construction of a two-track standard gauge railway line from Mombasa to Kisumu.

With the high number of imported goods in the country, he says, this will obviously affect the cost of the imported goods.

Another tax measure was the move to ensnare all the landlords into the tax bracket which he says may also lead to hike in rental income as landlords try to pass on the cost to tenants.

However, Thindi says Kenyans may not feel the pinch for too long as the government will likely put in measures to avoid exploitation by the landlords.

“Kenyans will go for cheaper houses to reduce cost hence increase demand for tenants for the middle and high end market. But the immediate effect will be landlord reacting upwards.”

Last year, the then Minister for Finance Njeru Githae directed Kenya Revenue Authority to ensure all landlords earning rental incomes pay their due share of taxes to the exchequer a move that has been tricky to implement.

Rotich says this will be solved by December this year after KRA automates its tax systems and map out all rental property in urban areas to put in place a robust institutional framework for bringing all these landlords into our tax net.

The National Treasury also plans to introduce the Capital Gains Tax which will mostly affect the real estate sector.

However, Tax expert at KMPG Peter Kinuthia argues that unlike the fear of high cost of houses on sale, this will help bring discipline in the real estate sector.

“Sometimes people sell these houses at ‘crazy’ prices and I think it’s time we get order even as KRA enjoys the expected huge revenue from this measure” the KPMG tax said.

Capital Gain Tax was suspended in 1985 and may have to be brought back through an amendment.

Kinuthia however says the only relief for Kenyans is if the government will cut on its spending and focus on long term projects that will grow the economy hence trickle down to the common mwananchi through the drop and stable inflation.

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