Budget 2020/2021 bad news that got lost in the Covid-19 wind

Friday June 26 2020
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Treasury Secretary Ukur Yatani when he arrived at Parliament Buildings on June 11, 2020 to table the Sh3.2 trillion Budget. PHOTO | FILE | NATION MEDIA GROUP


The 2020/2021budget has not been given enough attention by the public, amid changing Covid-19 changing guidelines and the untidy party politics going on. The overarching theme of making projections and adjustments to cushion trade, industry and livelihoods against a declining global economy should and can still be the priority for treasury and all arms of government.

According to the World Bank, the global economic growth is declining, a trend that started in 2019 and has been greatly aggravated by the pandemic, geopolitical tensions and widespread lockdowns which have stifled economic activity and trade. It might be that only the Kenyan police are beneficiaries of lockdowns as they turn the county boundaries into toll stations where as little as fifty shillings will get any Kenyan across county lines in the continued false containment on mobility in the counties of Nairobi and Mombasa.

Kenya, like many world economies, has not taken serious steps to cushion the vulnerable who are most at risk. Whereas the government has commendably waived examination fees for children set to sit their primary and secondary school exit examinations, there is no real plan to ensure that all Kenyan schools have access to clean water as a basic measure to guarantee hygiene in schools. Instead the ministry of health has initiated a public discussion on masks whose efficacy in prevention has not been scientifically proven and whose use has been disapproved for children under seven, who constitute a good percentage of the school population.

Proposed taxation on savings on home ownership savings plan seems to be a direct contradiction of the government’s agenda on provision of housing. It discourages savings towards home ownership. Housing, aside from being a basic need, is also one of the corner stones of social security that gives a population the ability to engage in other social economic activities.

There is also no consideration of the fact that many residential income taxpayers are individuals and not corporates. The current simplified regime of 10 per cent on gross receipts must give consideration to a minimum taxable income in an environment where incomes have been reduced, lost all together or have been postponed indefinitely. This has meant reduction on rental incomes, some of which is retirement earnings as well.

The government proposes to tax retirement savings with the National Social security Fund. It also wants a cut of pension of the population above 65 years which is currently not taxed, making the future bleak for retirees. Though this increases the much needed tax revenue, it is unbelievable that meagre life savings would be taxed at the point when one is leaving behind their productive years. There is urgent need to set a ceiling on tax on pension to cushion low income pension earnings as well.



A tax on digitally generated revenue has also been introduced. The youth who have a large online presence may feel targeted by this tax. But in reality, since the stay at home directives, many large corporates have transferred their footwork into an online presence and home delivery services. Whereas the data in Kenya may not be currently available, internationally that has been the trend. Income lost on physical presence in stores has been replaced and other times double by online buying.

A minimum tax has also been introduced and seems to target SMEs and other entities that continuously declare zero returns on income. Whereas this seems logical, the timing is highly inappropriate as most small enterprises are shutting down or having to reorganise business in the face of pandemic constrains. It is also scheduled to be implemented in January 2021 and it is not clear if this shall be on income from 2020.

One of the biggest beneficiaries of the budget is the tourism and manufacturing sector. Tourism will receive billions of shilling for renovations, game parks and conservancies. Majority of these are private enterprises set to enjoy cushioning with public funds. Of interest in manufacturing is some sh4 billion for development of special economic zones in Naivasha and Athi River.

Special economic zones are exempted from regular taxation laws that apply to other businesses in the country. One would think that Naivasha is best known for tourism and horticulture. And it will be of interest to see if this zone is in any way associated with the Standard Gauge Railway terminus set to be domiciled in Naivasha as well.

The vulnerable seem to be an easy target for the tax net.

Twitter: @muthonithangwa