Grant Thornton: Analyzing Kenya’s 2.3 Trillion Shillings Budget

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Henry Rotich, Kenya’s National Treasury Cabinet Secretary presented a KSh2.3 trillion shillings budget for the 2016/2017 financial year in parliament on Wednesday afternoon under the theme “Consolidating Gains for a prosperous Kenya”.

Grant Thornton, the 5th largest assurance, tax and advisory organization in Africa, and the Kenya Private Sector Alliance (KEPSA) analyzed Kenya’s National Budget in a debrief that included commentary from the Kenya Revenue Authority (KRA).

Kenya’s GDP grew by 5.6 per cent in 2015, compared to 5.3 per cent in 2014, backed by significant growth in key sectors including agriculture, construction, real estate, finance and insurance.

Rotich’s budget prioritizes some of these sectors to ensure service delivery, value for money and a sustained economy.

The Kenyan economy is projected to grow at 6.8 per cent in 2016, a possibility according to Mbiki Kamanjiri, Senior Associate at Grant Thornton Kenya. “The ambition shown in consolidating the gains made so far with regards to the budget invokes optimism.”

Total exports increased by 8.2 per cent to KSh581 billion in 2015 while imports decreased by 2.5 per cent to KSh1, 578 billion. This improved the balance of trade from a deficit of KSh1, 081 billion in 2014 to a deficit of KSh997 billion in 2015.

The volume of trade improved marginally by KSh2 billion.

Africa was the leading destination of Kenya’s exports accounting for 41.7 per cent of the total exports at KSh242 billion, with exports to EAC partner states accounting for 52.3 per cent of the total exports to Africa.

Among the changes in the 2016/2017 budget is a Tax Amnesty for income earned and assets held overseas for taxpayers who are unwilling to reinvest it in Kenya.

“There is a need for clarification around the issue of tax amnesty. What if an individual takes advantage of the amnesty and doesn’t bring back the taxes owed in Kenya?”  Partner Parag Shah asks.

The government has granted tax exemptions to park entry fees, commissions earned by tour operators and hotel service charges in a bid to boost Kenya’s ailing tourism industry.

The core capital requirement for banks has been raised from KSh1 billion to KSh5 billion to strengthen the banking sector.

In a move to ease the cost of doing business in the East African nation, regulatory levies charged by agencies such as the National Environmental Management Authority (NEMA) and National Construction Authority (NCA) were scrapped.

The Government Digital Programme is expected to make all payments for government services electronic sealing corruption loopholes by eliminating solicitation of bribes. In 2015, the government moved to provide most of its services under the e-citizen portal on which 1.7 million Kenyans have registered to date. It allows access to 115 services from different agencies with services ranging from land transactions and business registration to work permit applications.

To protect local manufacturers, Treasury has increased the import duty rate of iron and steel products and oil filters and zero rated import duty on the inputs for the manufacture of matches and raw materials to manufacture bolts and nuts.

However, import duty on wheat grain was reduced to 10 per cent from 35 per cent. “The government seems to be supporting the idea of “Made in Kenya” but has left wheat farmers to face competition from imported wheat which will reduce in price. This will not benefit local wheat farmers,” Director Samuel Mwaura noted.

A 10 per cent excise duty has been introduced on cosmetics and beauty products. With the cosmetics industry in Kenya estimated to be worth more than KSh8 billion, Treasury is poised collect up to Ksh800 million; exposing the industry to counterfeits.

Motorists and commuters will also affected by the increase in road maintenance tax. The additional Ksh6 at the pump will likely lead to increased transport costs and commuter fares.

An increase in kerosene prices by more than Ksh7 per litre- to curb its use in the adulteration of petroleum according to Treasury- will be a burden for low income households which use kerosene as its main energy source.

Rotich’s budget clarified previous budget announcements on increase of excise duty on plastic bags. Mwaura added, “It has now been confirmed that excise duty applies to all plastic bags and not some. This will have a positive impact on the environment in the near term but more needs to be done.”

Grant Thornton’s East Africa hub in Nairobi, Kenya brings together 11 partners under the leadership of Kamal Shah.

Its network on the continent comprises of member firms in Algeria, Botswana, Congo, Ivory Coast, Egypt, Ethiopia, Gabon, Guinea, Kenya, Libya, Mauritius, Morocco, Mozambique, Namibia, Nigeria, Rwanda, South Africa, Senegal, Tanzania, Togo, Tunisia, Uganda, Zambia and Zimbabwe.

The firm helps dynamic companies realize their potential for growth through strategy and not revenue targets.

Grant Thornton made collective revenue of $4.8 billion from the 133 countries it has a presence worldwide in 2015.

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