Slim options for Uhuru

June 11, 2009

, NAIROBI, Kenya, Jun 11 – Finance Minister Uhuru Kenyatta has the Herculean task of trying to raise Sh866 billion for this year’s budget, and analysts are speculating widely on how this could be achieved.

A Tax Manager at KPMG Peter Kinuthia said on Thursday that the Finance Minister might seek to raise the taxes through the usual alcoholic beverages and cigarettes.

He also stated that the tax on mobile phone air-time might be increased as well.

“For him to come up with the revenue to cover for this expenditure, he has at least to rub a few people the wrong way,” Mr Kinuthia offered.

“As has traditionally been the case, syntax has traditionally been the first culprit. We expect that people who indulge in beer and smoke cigarettes and airtime will have to pay a little more to cover the extra cost,” he explained.

The tax manager was speaking during an exclusive interview with Capital Newsbeat, where Ernst and Young tax expert Benson Mwema stated the limited options Mr Kenyatta had in his quest to generate revenue to fund the budget.

“We have already seen him in the past saying that he wants to float a sovereign bond that is borrowing from foreign countries,” he said.

“This is not a viable option. We had problems earlier on in terms of political situations in Kenya and so our credit rating went down due to that,” he stated.

“Domestic borrowing is tricky for him because if he borrows domestically, he will be competing for money with you and I, the common mwanachi.”

Meanwhile, Ernst & Young Senior Tax Advisor Benson Kibunja voiced his expectation that Mr Kenyatta would increase the Value Added Tax (VAT) on goods from the current 16 percent to 18 percent in a bid to harmonise it with the other East African Countries.

He however stated that such a move would affect low income earners negatively.

“VAT is lowest in Kenya at 16 percent. If Uhuru probably wants to harmonise it, he will probably want to take it up to 18 percent to be at par with the other East African countries,” he stressed.

“Indirect taxes are regressive taxes. If I earn Sh100 and you earn Sh500; if you make me spend the same amount on the same item, the portion that I am going to spend in terms of taxes on a product is definitely more,” he emphasised.

Mr Kibunja further alluded to the fact that the Finance Minister could re-introduce the capital gains tax on property, an option he terms as not viable.

“Capital gains may be re-introduced in this budget. What that means is that we are going to have to pay for those houses that we sell and that is not going to be any good for us. The cost of housing is already high for us and by saying that we are introducing a tax on that income, we are saying that we want to take it higher,” he added.

Both experts are of the opinion that the Finance Minister could put pressure on Members of Parliament to pay taxes to generate revenue.

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