In Summary
  • Mr Rotich has budgeted for Sh3.074 trillion for the financial year starting next month, Sh454 billion more than the initial spending plan for the current fiscal period ending this month.
  • Treasury is looking to net Sh1.743 trillion in ordinary revenue – taxes and non-tax income sources such as fees and commissions for various services – Sh253 billion more than the present year.
  • The cost for basic commodities such as maize flour, ordinary bread and cassava flour, wheat or meslin flour, milk and cream without sugar concentrates and other sweeteners, farm pest control products and liquefied petroleum gas will likely go up.

Treasury Cabinet secretary Henry Rotich’s budget on Thursday will likely hit households hardest through higher cost of some basic commodities as he hunts for cash to kick-start implementation of President Uhuru Kenyatta’s ambitious Big Four Agenda.

Mr Rotich has budgeted for Sh3.074 trillion for the financial year starting next month, Sh454 billion more than the initial spending plan for the current fiscal period ending this month.

With headroom for foreign borrowing thinning by the day amid pressure from the International Monetary Fund (IMF) to halve budget deficit to about three per cent in four years, the Treasury has signalled a rise in taxation to grow domestic revenue.

Treasury is looking to net Sh1.743 trillion in ordinary revenue – taxes and non-tax income sources such as fees and commissions for various services – Sh253 billion more than the present year.

The Sh1.49 trillion ordinary revenue target for this year is likely to be missed given that only Sh1.094 trillion had been raked into the exchequer in 10 months through April, Sh396 billion short of the estimates with two months left.

“The performance of the revenue estimates for 2018/19 is contingent on ongoing reforms in tax administration primarily as a result of modernising VAT systems, reducing zero-rated products through the Tax Laws (Amendment Bill 2018 (and) tax base expansion through targeting nil and non-filers,” the Budget and Appropriations Committee of the National Assembly says in the estimates for 2018-19 financial year tabled last week.

Reclassification of foodstuffs

The proposed reclassification of some foodstuffs, medicaments and farm inputs from zero Value Added Tax (VAT) to exemption status is perhaps what is likely to hit households hardest if the National Assembly passes Tax Laws (Amendment Bill 2018 without changes.

The cost for basic commodities such as maize flour, ordinary bread and cassava flour, wheat or meslin flour, milk and cream without sugar concentrates and other sweeteners, farm pest control products and liquefied petroleum gas will likely go up.

Medicaments such as vaccines for human and veterinary medicines, raw materials to pharmaceutical manufacturers and supplies to marine fisheries and fish processors will also be affected by the proposed changes in the VAT Act, 2013.

Services such as transfer of a business as a going concern by a registered person to another registered person and supply of natural water – excluding bottled water – will likely also suffer an upward price pressures.

The shift from zero-rated VAT to exempt status will mean manufacturers and suppliers will not claim the 16 per cent VAT refund from the KRA for materials used in the making of those goods or provision of the services.

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