National Treasury Principal Secretary Kamau Thugge. (Photo: Moses Omusula/Standard)
The Government has promised not to burden Kenyans with additional taxes as it presents its Sh2.6 trillion budget for the 2017-2018 financial year.
In the budget to be read next week on Thursday, the National Treasury says that in the absence of one-off expenditure such as drought mitigation, election funding, and the standard gauge railway, the pressure on the budget deficit has gone down and the remaining shortfall can be funded with the current taxation levels.
A budget deficit occurs when a government’s expenditure exceeds the revenue it generates, excluding money from borrowings.
Both salaried and non-salaried Kenyans, the Treasury says, should not expect additional or enhanced taxes to fund the increased budget.
“We are not planning to raise income taxes. If you will listen to the budget reading next week, there will be no proposal in raising income taxes,” said National Treasury Principal Secretary Kamau Thugge.
His view was supported by Geoffrey Mwau, the director general for Budget, Fiscal and Economic Affairs at the Treasury. They said the growth in the economy has been matched with higher collections and that Kenyans should rest easy.
“When the economy grows, revenue and GDP grows. This coming year, we expect Sh1.77 trillion (from the current Sh1.5 trillion) and this is based on growth and other factors driving the economy. Don’t brace for tax increases. That is not going to happen,” assured Dr Mwau.
He criticised investment analysts for “misleading the public” that additional taxes are in sight to fund the budget that is now double the size of the 2012-13 expenditure.
Dr Thugge said Treasury expects the 2017-18 budget to have a deficit in the range of six to 6.5 per cent of GDP. This, he said, is a significant narrowing compared to nine per cent in the current financial year.
In the medium term, Thugge was upbeat that the deficit would narrow to four per cent. And excluding SGR, he sees it going further down.
According to Thugge, the Government is forecasting the nominal gross domestic product (GDP) to hit Sh8.5 trillion, up from Sh7.2 trillion that it expected in the current year.
On the assumption that the Government can maintain the same ratio of tax revenue to GDP, Thugge said the economy can comfortably add Sh200 billion without going for new tax measures.
The Treasury bosses said the Government will go to the external markets to borrow Sh205 billion to meet the budget deficit of Sh523 billion. Domestically, it intends to borrow Sh318 billion.
Since interest on domestic debt is almost three times that of external market, Thugge said the ministry estimates interest on domestic borrowing to be Sh210 billion and the external one Sh80 billion.
The budget, coming earlier than that of its counterparts in the region as it has been the tradition, has seen government planners come to the table sooner than before to juggle between the supplementary budget for the current year and the next financial year.
Treasury has indicated that the other countries of the East Africa Community have given it the go-ahead to read the budget, which will not pre-empt anything touching across the borders.
“There is no legal requirement to do it at the same time. There will still be consultation on the Customs Union, so we may not have concluded that. That can continue even after the speech,” he said.
Even without the tax increase, which is likely to excite voters, tax experts are warning that there could be a major shocker in the aftermath of the budget that will overshadow this rare gesture from the Government.
According to Asif Chaudhry, a partner at PKF Kenya, a tax and advisory services firm, the early timing of the budget to pave the way for the elections could mean that Treasury has not had enough time to plan and put implementation structures in place.
“I do not think the budget will really say much. It might be a formality budget and might not have major policy proposals. There is nervousness as to whether they are ready to present the budget or whether we have to get it out of the way because of the elections,” he said.
Nikhil Hira, a partner and tax leader at Deloitte East Africa, said Kenyans should only celebrate after the supplementary budget.