Treasury’s headache as MPs punch Sh51b hole in budget

Thursday, May 26th, 2022 10:27 | By
Treasury CS Ukur Yattani
Treasury CS Ukur Yattani. PHOTO/File
Treasury CS Ukur Yattani

National Treasury has found itself between a rock and a hard place after legislators dug a Sh50.6 billion hole in the budget by rejecting some tax proposals before them. The move, which has been supported by tax experts, sends the Exchequer back to the drawing board, in what will be a struggle to raise the revenue given the tight economic situation the country faces which has led to a high cost of living.

On Tuesday, legislators with an eye on re-election dismissed proposals to increase taxes on maize flour, cooking gas, beers, spirits and wine, in addition to rejecting the 50 per cent tax appeal deposit plan for individuals and companies. They feared the move could cost them the August 9 General Election. 

Francis Kamau, a partner and tax leader with audit firm Ernst and Young said the pushback by legislators addresses a huge economic upheaval that would have been heralded by an upsurge of prices of most goods, with a risk of galloping inflation.

“Treasury raising taxes will not yield additional revenue. It is counter-productive and the only way out is to expand the tax base and bring more tax payers to the net,” he said. Kamau said authorities can unlock new tax frontiers by creating synergies with utility service providers- power and water- through their billing systems to on-board landlords into the tax bracket as well as taxing land transactions and its utilisation. 

“Counties know the economic activity of their citizens. They can advise the Kenya Revenue Authority on how these same can be taxed for in Wajir; how do you tax large scale camel herders,” said Kamau.

Nikhil Hira, a partner at Kody Africa LLP said the treasury’s options were limited to either cutting expenditure or borrowing to shore up the gap, while attributing the legislative rejection to the impending elections.  “It is an election year and members of parliament are not keen to increase taxes, especially when Mwananchi is suffering,” said Hira, who reckoned the process was rushed to beat the deadline and will require a supplementary budget to plug the expected shortfall.

Tax collections

In its financial year 2022/2023 , the government’s total expenditure has been projected at Sh3.3 trillion. Tax collections will account for Sh2.14 trillion while the Sh862.5 billion deficit will be financed through Sh280.7 billion from external borrowing and Sh581.7 billion sourced domestically. Yesterday, a section of lawmakers allied to the Kenya Kwanza team told the Gladys Wanga led Finance committee to write to speaker Justin Muturi informing him of its decision to withdraw all the controversial proposals before they are voted upon if they want to deal with the high taxes imposed on Kenyans.

The legislators alleged the committee and the National Treasury planned to mobilise members of parliament to veto the report and blame the house for frustrating efforts to lower the taxes.

“ If the committee is serious, they should write to the speaker, saying the controversial clauses should not be in the report so that they are not considered during the third reading stage,” said Aden Duale, the Garissa Township Member of Parliament.

Duale’s sentiments were echoed by Kikuyu MP Kiimani Ichungwa, who said Kenya Kwanza lawmakers have prepared a number of amendments to the bill they intend to introduce should the move by the National Treasury carry the day.

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