Why President Kenyatta big 4 agenda may be harder to realise than previously thought

On February 2018, Kenya’s President Uhuru Kenyatta unveiled the manifesto of his Jubilee administration for the next five years in what he called the Big 4 Agenda.
It is now emerging that the government is betting on a raft of proposed tax increases to fund President Kenyatta’s vision whilst somehow hoping it won’t scare off investors in East Africa’s biggest economy.
The proposed tax bill, if passed into law, would effectively make Kenya’s proposed company tax rate the highest in East Africa and as a result hurt Kenya’s position as a desirable investment hub.

On February 2018, Kenya’s President Uhuru Kenyatta unveiled the manifesto of his Jubilee administration for the next five years in what he called the Big 4 Agenda. These are: manufacturing, affordable housing, food security, and universal health care.

Speaking during the national youth service recruits passing-out parade at the national youth service college, gilgil, Nakuru County Mr. Kenyatta said the big 4 would set the country on a transformative path for future posterity.

“The key to achieving our national goals and the aspirations of our people, including Vision 2030 and the Big 4 Agenda, lies in working together in deliberate and strategic partnerships.” Said Kenyatta.

What he however failed to mention was just how the Big 4 Agenda would be financed.

It is now emerging that the government is betting on a raft of proposed tax increases to fund President Kenyatta’s vision whilst somehow hoping it won’t scare off investors in East Africa’s biggest economy.

A draft bill released this month propose introduction of a new top bracket for income tax.

The draft bill also wants to lift the rate for companies with an annual income of more than 500 million shillings ($4.9 million) to 35 percent, the highest in the region, and boost the levy on capital gains to 20 percent from 5 percent.

Kenya is basically caught in a catch 22 situation.

The government in the $77.3 billion economy needs to fund unprecedented spending of 2.53 trillion shillings for the next fiscal year, while also reducing borrowing and narrowing the budget deficit.

Also read: UHURUTO SPLASHED SH1.73 BILLION ON PARTIES AND RECEPTIONS LAST YEAR ALONE

The situation is even compounded more by the fact that President Kenyatta expanded his cabinet making running the government more expensive than before.

The proposed tax bill, if passed into law, would effectively make Kenya’s proposed company tax rate the highest in East Africa and as a result hurt Kenya’s position as a desirable investment hub.

According to Vimal Shah, chairman of Bidco Africa Ltd., a manufacturer of edible oils and other consumer goods the bill may negatively affect the investment the government hopes to attract for its economic plan.

“We are in competition with the world for investments,” Shah said by phone. “We are not an island. Some proposals will make Kenya the least attractive.” He said.

The draft bill does not only raise the corporate tax but also scraps off some of the incentives to investors.

The bill abolishes tax holidays for investors in special economic zones and export-processing zones and proposes foreign companies pay demurrage charges for delays.

This will have an opposite effect since according to Fred Omondi, a tax partner at Deloitte, shippers are likely to pass on this cost to importers, which will increase the cost of doing business in Kenya.

While the nation’s ratio of tax to GDP of 19.1 percent exceeds the average for sub-Saharan Africa, according to International Monetary Fund data, it lags countries such as South Africa and Mauritius.

“Should the government decide to consolidate its fiscal deficit via this avenue, it needs to ensure that the savings it makes and additional revenue it earns are channeled toward enhancing the productive capacity of the economy,” said Jibran Qureishi, an economist at Nairobi-based Stanbic Holdings Ltd.

“Only then perhaps one could justify this increase in corporate and income taxes in this current environment.”

Kenyan authorities have said they’ll broaden the tax base as they seek to increase revenue to help fund the 2018-19 budget and reduce a deficit that was at 8.9 percent of gross domestic product last year.

Treasury Secretary Henry Rotich will present spending plans to lawmakers on June. 14.

However, even if the new legislation succeeds in increasing revenue, leakage of government funds due to graft remains a concern.

Just early this week the Director of Public Prosecutions (DPP) Noordin Haji ordered dozens of civil servants to be prosecuted for alleged corruption after more than Sh9 billion ($90m) went missing from the National Youth Service.

Accounting for public funds is still wanting and according the Auditor-General’s office 2016 report, only 27 percent of ministries and departments had clean audit opinions as of that year.