Inside Kenya’s tax-led growth proposition
As Kenyans prepare for the second budget reading for the 2024-2025 fiscal year under President William Ruto’s administration, tax experts are faulting some of the key tax measures citing concerns over businesses. CNBC Africa’s Aby Agina spoke to Robert Maina, Associate Director: Tax, Ernst & Young for more.
Wed, 22 May 2024 10:29:32 GMT
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AI Generated Summary
- Government revises projected expenditure for fiscal year 2024-2025 in response to revenue constraints and tax collection performance
- Recurrent expenditure claims majority share in the budget allocation, while development expenditure faces reduction, impacting project execution and economic growth
- Proposed tax measures in the finance bill raise concerns within the manufacturing sector, highlighting potential challenges for industry competitiveness and GDP contribution
Kenya is preparing for the second budget reading for the fiscal year 2024-2025 under President William Ruto's administration, and tax experts are raising concerns over key tax measures that could impact businesses in the country. Robert Maina, an Associate Director of Tax at Ernst & Young in Kenya, shed light on the anticipated budget adjustments and the potential ramifications of the proposed tax changes. The government has already revised the projected expenditure for the upcoming financial year, lowering it by about 300 billion shillings. This adjustment reflects a realization that the official tax targets may not be attainable, based on the performance of tax collections in the preceding months leading up to April. To maintain fiscal consolidation efforts, the government is trimming expenditures to align with revenue constraints and target a sustainable fiscal deficit. Despite an influx of tax revenues, the government is recalibrating its budgetary priorities. Recurrent expenditure continues to dominate the budget allocation, comprising 70-71% of the budget, while development expenditure faces a reduction from 21% to 18%. This shift underscores the challenges in optimizing expenditure allocation for sustainable economic growth and project execution. The impact is already visible, with slowdowns and halts in infrastructure projects across the country. The proposed finance bill introduces various tax measures aimed at boosting revenue to bridge the budget deficit. However, concerns are mounting, particularly within the manufacturing sector, regarding the potential adverse effects of the tax proposals. The focus on indirect taxes, such as consumption levies, could strain the manufacturing industry, which already contends with a heavy tax burden. New levies like the 'equal levy' and proposed increases in import declaration fees could further weigh down the sector's competitiveness and impede its growth trajectory. Maina highlights the need for a comprehensive evaluation of previous tax reforms' effectiveness before introducing additional levies. Overloading the manufacturing sector with new taxes without tangible results may hinder its contribution to the GDP and jeopardize the government's economic objectives. The trajectory of tax policies and their cumulative impact demand a cautious approach to sustain economic growth and industry vitality in Kenya.
