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Lewis Njoka @LewisNjoka

Experts have warned Kenyans to buckle up as they await tomorrow’s budget statement which will lay the ground for the 2020/21 financial year.

Treasury Cabinet secretary Ukur Yattani’s inaugural budget statement comes on the backdrop of an economy already harangued by severe floods, locusts invasion and the Covid-19 pandemic, which now threatens to throw the economy under the bus.

With very little headroom left, it will be a tough call for Yatani’s ambitious Sh3.2 trillion Budget which includes redemption of Sh441 billion for maturing bonds, hoping to cushion Kenyans from a health hazard which is threatening to turn into an economic catastrophe.

The CS will be looking to collect revenue totaling Sh1.88 trillion from the Consolidated Fund to meet the expenditure during the year ending June 30, 2021, of which Sh1.62 trillion will be ordinary revenue.

This is a dip compared to the approved 2020 Budget Policy Statement where total revenue was projected at Sh2.1 trillion with ordinary revenue estimated at Sh1.85 trillion.

Tax laws

Revenue estimates drastically reduced from the initial ones in the 2020 Budget Policy Statement (BPS) approved three months ago.

Nonetheless, in light of the revenue underperformance coupled with the effect of the Tax Laws (Amendment) Act 2020, this has led to the dip in revenue estimates.

Save for ordinary revenue, other incomes include railway development levy and appropriations in aid whose targets have been reduced from Sh27.8 billion to Sh27.1 billion and from Sh249.6 billion and Sh221.9 billion respectively.

Despite the reduction, economic analysts say the revenue target is too ambitious considering the current tough business environment occasioned by the pandemic, which saw President Uhuru Kenyatta prescribe an ambitious Sh53.7 billion stimulus package to avert an economic catastrophe.

The programme focuses on key sectors among them infrastructure, education, health, agriculture and tourism.

Other sectors that will benefit from the eight-point stimulus programme include SMEs, environment and manufacturing.

The Budget sets aside Sh111.7 billion towards health with funding to combat Covid-19 but only Sh1.73 billion can be pinpointed as direct funding to tackle the pandemic under the Economic Stimulus Package with most going towards Covid-19 Emergency Response Fund.

Teachers Service Commission, the largest employer, gets the lion’s share at Sh266.1 billion or 15 per cent of the budget to the central government, followed by allocation to infrastructure at Sh189.6 billion, although this is Sh50.6 billion lower than the Budget in the current fiscal year.

Excise duty

“We agree with the Budget and Appropriations Committee’s (BAC) tone that the revenue realism may be ambitious in backdrop of Covid-19 shocks.

Slower consumption will have a negative knock on effect on excise duty, VAT and import duty revenue streams.

Worsened business environment will be detrimental on corporate income tax; and layoffs/reduced employment income will derail PAYE stream,” said Genghis Capital head of research Churchill Ogutu in a statement.

He said despite the Parliament’s Finance Committee painting a bearish outlook on FY2020/21 revenue projections, there were not many measures in place that could lead to a significant rise in revenue.

Francis Kamau, a tax partner at Ernst and Young described the revenue targets as being over-ambitious saying he expected Kenya revenue Authority to collect Sh1 trillion at best considering that it rarely met revenue targets.

He singled out the anticipated dip in customs duty collections, Paye, corporation tax and VAT as some of the factors that will make it extremely difficult for KRA to meet its revenue targets.

“Businesses are going to report losses, while others will not be able to pay taxes, from a corporation tax perspective. What I am trying to say is, all tax segments will be affected,” said Kamau.