Why President Uhuru’s final budget contradicts our economic realities

BY ANTONY MUTUNGA

On April 2 of this year, National Treasury Cabinet Secretary Ukur Yattani presented before Parliament a Sh3.3 trn budget for the next financial year.

The national budget for the year 2022/23, which was presented two months earlier than usual because Kenyans will be going to the polls come August, has hit a new high as its total estimates stand at Sh3.3 trn, an increase from Sh3trn FY’2021/22 outlined in June last year. 

The upward trend has been witnessed ever since the current government took over – the budget has increased about three times from Sh1.3 trillion FY’2013/2014. Raising the question, will it boost economy?

Recurrent expenditure is expected to take up the largest share of the total expenditure (67%) for the next financial year as it continues its increase from Sh2.0 trn FY’2021/2022 to Sh2.3trn FY’2022/2023. 

Development expenditure and county allocation on the other hand, continue to take minority share of 22% (Sh711.5billion) and 11% (Sh370billion), respectively. Infrastructure also seems to be crucial to the government with its expenditure expected to increase by 8.6% to Sh416.4bn from Sh383.3bn and to account for 58.5% of the development expenditure. 

It will be tough to source for revenues to make the national budget work especially now that the share of development expenditure of the total expenditure still remains below the 30% requirement of the Public Financial Management Act.

As expenditure is expected to increase, revenue is also projected to increase as revenue collections, with Appropriation-in-Aid (A.i.A) included, are projected to go up from Sh2.06 trn (16.3% of GDP) last financial year to Sh2.45 trn (17.4% of GDP). Of the projected revenue, the government aims at raising Sh2.14trn from Sh1.81 trn raised last financial year, which is an increase of 25%.

The revenue is expected to be sourced from; income tax – which remains the main revenue generator with a projection of Sh997bn in FY’2022/23 – VAT tax which is projected to increase to Sh584.7 bn of the total revenue and excise duty which should account for Sh297.2bn of the projected revenue collections
FY’2022/23. 

While revenue collection has seen an upward trend since the 2017/18 financial year, the Kenya Revenue Authority will face an uphill task to increase its revenue collection, especially at a time when the cost of living is already high. 

In order to meet its projections, the government will have to increase revenue collection by a tune of over Sh350bn. To make it happen, government might be forced to increase the excise duty. For instance, it plans to introduce a 15% excise duty on fees charged by all television stations, print media, billboards, and radio stations for advertisements of alcoholic beverages, betting, and gaming while also placing a 10% excise duty on certain products, excluding petroleum products. 

There is also a plan to amend the Tax Appeals Tribunal Act, 2013 to require a taxpayer who is aggrieved by the decision of the Tax Appeals Tribunal (TAT), to deposit 50% of the disputed tax revenue in a special account at the Central Bank of Kenya as the taxpayer proceeds to appeal the decision in the High Court. Should the matter be ruled in the taxpayer’s favour, the deposit will be refunded within 30 days after final determination of the matter in court. 

Although Yattani emphasised that the budget aims at speeding up economic recovery from the effects of the maddening Covid-19, a section of Kenyans say that it contradicts current economic realities. The on-going reforms in tax policy and revenue administration might hurt the masses, but if they are to pass then the government will have moved closer to realizing the reduction of the budget deficit from the current 8.1% of GDP FY’2021/22 to the targeted 6.2% FY’2022/2023. 

He also revealed that to ensure the reduction, the government will be forced handle the issue of growing recurrent expenditure through reforms. Only then can the government be able to increase finance to other sectors such as agriculture that are expected to see a reduction in allocation, with a projection of Sh66.8 bn FY’2022/23 from Sh73.9 bn in the previous financial year. 

“Building on the gains made under the first and second phase of the Econimc Stimulus Programme, the government is implementing the third phase which is designed to accelerate the pace of the economic growth,” Yattani told Parliament.

At a time when food security and economic recovery after the pandemic are of the utmost importance, the country must intervene for 2022 to be a bright year. Otherwise, pressure will rise on government in its push to raise revenues (from tax payers) to plug the Sh3.3 trn plan.  

“In 2022, the economy is projected to stabilise at 6 percent supported by the prevailing stable macroeconomic environment, favourable weather conditions to support agricultural output and drive food processing (manufacturing) and the continued recovery in industry and services,” said Yattani. .