Kimunya budget elicits mixed feelings

June 15, 2008

, NAIROBI, June 13 – Finance Minister Amos Kimunya’s 2008/2009 budget continued to elicit mixed reactions from financial analysts on Friday who lauded him for making a well-balanced presentation but also faulted him for excluding some important issues.

Ernst and Young Tax Partner Gitahi Gichahi told a media briefing that Kimunya’s budget failed to touch on the issue of high fuel costs, which if addressed, would have had a positive and trickle-down effect on all sectors of the economy.

“The major component in the price of fuel is tax. I think he should have passed such a law which would then have had positive ramifications for the farming and business communities,” he suggested.

“Immediately you touch the cost of fuel, you are likely to lower many costs and affect a wide part of the population,” he added.

The analyst observed that the minister had devised a clever way of balancing the budget, such that he was able to recoup the costs on zero-rated commodities by increasing the excise duty on others.

“We are seeing a situation where the minister gave some things with one hand and took something else with the other,” Gichahi noted.

He stated that the budget was ineffective in tackling the issue of the Double Taxation Agreement (DTA), an issue that would continue to hamper local companies seeking to venture into other countries.

Pointing out that Kenya only has six DTA treaties, Gichahi called on the professionals and the business community to aggressively push for the signing of these agreements with as many countries as possible.

At a press conference, tax managers at the audit firm hailed the minister’s attempt to widen the tax net by bringing on board Small and Medium Enterprises (SMEs) and women, and increasing sin tax such as on cigarettes and liquor.

Allowances payable to the Members of Parliament (MPs), will be taxable and expected to add Sh660 million annually to the exchequer.

“Married women will from now on declare rental, interest and dividend income separately from their spouses and this is another indirect way of increasing the tax bracket,” he said, adding that the projection to increase the Kenya Revenue Authority’s (KRA) tax collection to Sh513 billion for the next fiscal year, was realistic and tenable.

Asked what the implication of floating Sh52 billion worth of infrastructure bonds in the market would be, the tax expert said they would help to mop up excessive liquidity in the market.

He added that the move was unlikely to have a significant impact on interest rates.

At the same time, PriceWaterhouseCoopers (PWC) warned Kenyans not to expect any reduction in the prices of products due to the proposed zero rating of commodities like rice and bread in Thursday’s budget.

Tax Partner Shaira Adamali said that with the high rates of inflation, huge costs of fuel and high cost of doing business in the country, the move would have worked best only if the income tax thresholds were also increased.

“We are still being taxed on Pay As You Earn (PAYE); what we used to be taxed on in the last financial year when inflation rates were much lower,” she said.

She however acknowledged that the Finance Minister had very little manoeuvring space within the budget.

On the issue of the increase on sin tax through which the minister hopes to raise a total of Sh2.1 billion, Adamali felt that people might reduce on the consumption of alcohol and cigarettes resulting in Kimunya not being able to raise the targeted amount.

In its post budget presentations, the Audit Consultation Firm also raised concerns that despite the promise to turn around the economy from the expected 4.6 percent GDP to 10 percent in 2012, no actual measures were proposed.

PWC Country Director Charles Muchene said it would have been prudent for the minister to lay out exact measures and timelines for all proposals made.

However the firm applauded Kimunya’s proposals to deepen reforms in the financial services sector to make it stronger, more competitive, and more efficient in mobilising savings for development.

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