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Budget seeks to ease food crunch

NAIROBI, June 12 – The Government Thursday announced a raft of measures to ease the crunch felt by Kenyans due to the global food crisis by removing tax on crucial commodities.

Speaking in Parliament while presenting the national budget for 2008/2009 financial year, Finance Minister Amos Kimunya announced that tax on bread and rice had been removed.
“To mitigate against the adverse effects of high prices and make some basic food affordable to consumers, bread and rice will be zero rated under VAT,” the Minister told a hushed House.

He also announced a reduction on import duty payable on wheat from 35 percent to 10 percent.

“To make food items affordable, maize imports for the strategic grain reserve will be imported duty free and this should help dampen the pressure on maize prices,” he said.

Import duty on cement was reduced from 40 percent to 25 percent.

Kimunya proposed that allowances paid to Members of Parliament (MPs) be taxed to enable them to contribute to the national budget. This would add Sh660 million to the national kitty annually.

 “Kenyans with meagre resources pay their fair share of taxes and so should the MPs. This move is meant to reduce inequality among Kenyans,” he said amid jeers from the floor.

Kimunya also announced measures towards the rehabilitation, construction and expansion of the road network in the country.

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“The Government will introduce Sh52 billion worth of infrastructure bonds and spend Sh65 billion in road construction and maintenance,” he said.

But contrary to expectations, Value Added Tax (VAT) remained at 16 percent.

The price of cigarettes, malt and non malt beer was increased effective Thursday midnight.

He said: “The price of cigarettes will be increased by Sh7, malt beer by Sh4 per litre and non malt beer up by Sh5.”

The government projects that the exchequer will collect an additional Sh2.1 billion from these measures to be used as development funds.

Terming it as the toughest budget he has ever had to prepare as it was coming when the country’s revenue base was eroded due to the post election violence, Kimunya promised to ensure a balance between people’s needs and the constraints of rising fuel prices and inflation.

He said the focus was on: the restoration of the economy, reduction of poverty, deepening of human development efforts and the creation of employment.

The budget, which many termed as “neutral”  came at a time when Kenyans were not only grappling with high food and fuel prices but have a skyrocketing inflation exacerbated by the post poll crisis.

The big winners in the budget were especially the youth who were allocated quite a sizable amount for their development.

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 In what many saw as a reference to the involvement of young people in the post poll violence, Kimunya increased the Youth Enterprise Development Fund by a further Sh500 million, and an additional Sh250 million, which would go to the Youth Empowerment Centres across the country.

“I have also apportioned a further Sh1 million for all constituencies to go towards the purchase of sporting kits for soccer competition,” he added.

Kimunya exuded confidence that the budget has no financial gaps.

“The Sh127 billion overall deficit has been bridged through grants, loans, infrastructural bonds and domestic borrowing,’ he said.

Kimunya remarked that he intends to float Sh52 billion infrastructure bonds, to finance the rehabilitation of the road network, the roll out of ICT sector and water in the next financial year.

A further Sh63 billion would be set aside for the construction of new roads.

The ICT sector, which has been identified as one of the six key sectors expected to drive Vision 2030, welcomed the removal of import duty on the telecommunication equipment and on printers that are used together with the computers.

Sh900 million was also disbursed for the construction of a Business Processing Outsourcing (BPO) Technology Park in Nairobi which is expected to ensure the availability of internet service for the public and the creation about 10, 000 jobs.

This was in a bid to improve efficiency and promote investment in the telecommunication industry.

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He revealed that there were plans to table policy papers on health care financing, a health services commission and to decentralise health funds in a bid to make access to care and treatment more affordable for Kenyans.

He disclosed that 600 contract nurses would be absorbed in the public health service in 2008, while another 1, 000 would be hired during the same period.

He added that the government would ensure that hospitals are well equipped and staff properly trained.

Allocation in the Ministry of Water and Irrigation was increased by 26 percent.

Kimunya also allocated Sh1 billion for the construction of multi purpose water dams across the country.

“We want to facilitate access to clean, piped water in all constituencies so as to take the burden of searching for water off women and girls’ backs,” he noted.

On housing, the government allocated Sh350 million towards the development of construction of about 200, 000 affordable houses in the country.

Kimunya said the Government would also introduce the Housing Bill and Land Lord and Tenant Bill to facilitate faster development of affordable housing.

The Minister also set aside an additional Sh1 billion for the resettlement of the Internally Displaced Persons.

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Slum dwellers were allocated Sh500 million that would go towards the construction of physical and social infrastructure facilities in 20 settlement schemes across the country.

Investors will now have to seek only 46 licenses instead of 390 while a total of Sh4.4 billion, he said, would be given for the development of Northern Kenya.

On regional front, Tanzania raised its budget spending by 19 percent to Sh393 billion and set out broad measures to rely less on foreign aid.

Finance Minister Mustafa Mkulo told parliament that donors will fund 34 percent of the budget, down from 42 percent.

Mkulo said most of the money would go toward subsidies for fertilisers and boosting strategic grain reserves, both of which are suffering from higher world fuel and food prices.

Tanzania expects its economy to grow by 7.8 percent in 2008, compared with 7.1 percent in 2007.

Mkulo announced a raise on excise duty on beer, soft drinks, wines and spirits by 12 percent and by 75 percent on cigarettes.

In Uganda, The Government focused on Development and Maintenance of Transportation Infrastructure; Energy Infrastructure; Industrial Development; Human Development; and Security and Governance.

The government exempted VAT on table salt and beer made from local raw products but increased excise duty on cigarettes.

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Uganda also zero rated Heavy Fuel Oil used in thermal plants for power generation and for other industrial purposes.

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