Sh1.15trillion Budget will force borrowing

June 7, 2011

, NAIROBI, Kenya, Jun 7 – With Finance Minister Uhuru Kenyatta set to deliver a historic Sh1.15 trillion Budget before Parliament on Wednesday, the main concern among experts is how the government intends to raise funds.

Speaking to Capital Business, PKF Kenya Senior Tax Manager Michael Mburugu said apart from receiving funding from taxes, the Minister will have to borrow both internally and externally.

He said it was unlikely for The Treasury or the Kenya Revenue Authority (KRA) to meet the demand from local financing due to the sizeable shortfall between the estimates and the Budget presented.

"He will have to borrow internally either through the Treasury bond or from international institutions like the IMF or the World Bank.  Inevitably, he must borrow from somewhere because given the KRA collection last year, if you grew that by 20 percent, it is way off the Sh1.15 trillion mark," he said.

Despite the KRA\’s failure to meet the Sh308 billion target in the last fiscal year, Mr Mburugu said it was making efforts to bring in more tax payers into the tax bracket by tightening its administrative reforms.

Mr Mburugu also said it would be imperative for the Finance Minister to reconsider the amendment made to the Finance Bill last year that called for new criteria of taxation on cigarettes based on a retail sell price method.

The new requirements, he said, have been manipulated by manufactures subsequently causing the recent price wars in the tobacco industry and costing the government in taxes and revenue.

However, Mr Mburugu said revising the legislation could create an opportunity to increase revenue collection for the government.

"The Minister on a monthly basis is losing over Sh140 million out of that (new cigarette taxation criteria) alone. I would be shocked if the Minister does not change that legislation this year to make it tight and to ensure that the tobacco companies do pay what is deserved of them," he said.

The Minister has identified key areas of national strategic importance to receive major funding in this year\’s budget in education, health, infrastructure, tourism, internal security, agriculture and cushioning the poor.

Mr Mburugu said he also anticipates the Minister to offer incentives and measures to spur growth in the emergent ICT sector.

"The Minister is likely to increase further, the investment deductions that have been given to the ICT sector. Two years ago he introduced a 20 percent investment deduction on any capital investments on ICT equipment. I foresee an increment on that to about 50 percent per annum," he said.

Mr Kenyatta will deliver his budget speech in Parliament on Wednesday afternoon.

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