Kenya budget ambitious, say experts

June 11, 2010

, NAIROBI, Kenya, Jun 11- Ernst and Young has described the Sh997 billion-budget as “too ambitious” for the country, which will force it to rely on external borrowing leading to an increase in foreign debt.

Tax Consultant Grace Mulinge said Kenya did not raise enough revenue during the past financial year to adequately sustain expenses and could have to source alternative ways to meet her needs.

Ms Mulinge warned that the upcoming constitutional review processes would constrain the budget even further.

“It’s a very great challenge because the economy was directly and indirectly affected by the crunch. In addition, the budget is financed by taxation and evidently the revenue authority did not meet their targets which means that if the country fails to raise the money, the government will have to borrow heavily which is a huge cost,” she said.

She further explained that domestic borrowing through sale of bonds and intensifying tax collection efforts as proposed by Finance Minister Uhuru Kenyatta would be the best option for Kenya. 

“Floating bonds in the local market is cheaper than foreign funding and we hope that we will be able to actually meet our tax targets to be able to at least fund a large portion of the budget if not the full budget,” she said.

Ms Mulinge also explained that transfer pricing policies proposed by the Finance Minister would help ensure that profits obtained by multinational companies with related companies in Kenya did not transfer their profits to their related companies in other jurisdictions.

She also said that it would be prudent for the Kenya Revenue Authority (KRA) to file tax refunds as directed by the minister.  She noted that failure by the Kenya Revenue Authority to meet VAT tax refund deadlines was hampering the movement of cash in and out of business entities.

“VAT refunds which have caused a tremendous cash flow problem will now be payable within 120 days. Any refunds which were audited by the revenue authority and were payable by end of June 2010 will be payable by July 31st and since the revenue authority demands that we pay our taxes on time we expect that the revenue authority will meet this refunds within the due dates,” she said.  

She added that Kenyans in the Diaspora would be required to show proof of payment of taxes in their countries of residence. Those in countries that have a lower tax regime will have to meet the tax differential by remitting to KRA.

“The provision has been in the Act but majority of Kenyans don’t seem to be aware. So for that reason the minister has proposed a tax amnesty so that any Kenyan who volunteers to declare their income within the next year will get a tax amnesty and will not be charged penalties or interest on any outstanding amounts,” she said.

The agricultural sector, home and property owners, airline industries as well as Small and Medium sized Enterprises have been most favoured by this year’s budget.

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