Tax hikes on spirits, betting and gaming, and positive changes in the financial sector.
The new National budget 2017 was read on 30th March and with it comes a slew of changes affecting the nation at large. Characterized as a banal budget by some politicians, what can we expect from it in the coming months? Where does the new budget change your day to day spending patterns- this budget, as it turns out seeks to leave more money in your pocket – well, that however totally depends on how much you earn.
Here’s a roundup of the changes likely to affect your pocket book.
(1) More Disposable Income. Taxing the rich is good economics and hence, the government has further revised the 10% lower taxable income limit from KES 11,135 per month to KES 13,486 per month aimed at increasing net income for low income earners.
(2) Reduction in Cost of Stable Food. The cost of basic commodities such as bread and maize flour is expected to come down through a zero rate tax. No VAT will be paid for bread and maize flour and duty free importation for the next four months on all maize imports is expected to be realized.
(3) Increased Tax on Betting & Gaming. Increased taxes on betting and gaming to 50% for all categories (previously stood at 7.5% betting, 5% lottery, 12% gaming and 15% competitions). Some people use betting and gaming as investment vehicles only to later lose it all, claiming ‘high risks, high return’.
(4) Increased Tax on Spirits. Taxation of beer will remain unchanged while the government has increased tax rates on spirits from KES 175 per liter to KES 200 per liter effectively hiking your Friday night spending.
(5) Cigarette Tax Structure Revision. Tax revision has been done on cigarettes from a uniform inequitable tax structure of KES 2,500 per millie to a two tier tax structure of KES 2,500 per millie for cigarette with filters and KES 1,800 per millie for plain cigarette – thereby, saving some cash for plain cigarette smokers.
(6) Favorable Investment Environment. Various things are expected to change, ranging from:
(a) Lower tax incentives for construction firms developing low cost housing thereby, increasing supply of cheaper housing alternatives in the future.
(b) Similar tax treatment for new financial products (such as the Islamic finance products) with the conventional financial products thereby, may increase the number of new products in the market to choose from. Additionally, government intends to focus on development of Takaful Retirement Benefits Scheme which will increase access to pension schemes for the Islamic community.
(c) Increased supervision of insurance firms thereby, ensuring financial stability of the sector for our sake.
(d) Regulation measures for umbrella retirement benefits schemes to govern operations of such schemes will benefit many employees within organizations without their own pension scheme.
(7) Increased Access to Better Healthcare. VAT exception for the construction of specialized hospitals and purchase of medical equipment might see us have more specialized centers within the country, thereby reducing overall expense and need to travel aboard for specialized medical treatment.
(8) Crackdown on tax evasion. Additionally, plans to reassess and streamline double taxes by country government are underway.
(9) Donation Expenditure Deduction. Income Tax Act proposed revision will now allow deductions for expenditure incurred on donations towards alleviation of distress during national disasters. However, such donations should be deductible if channeled through Kenya Red Cross, a Country Government or any other institution responsible for national disaster.
(10) Lower Cost of Dates. Importation of dates during the holy month of Ramadhan will be done free of taxes.
(11) Investment in REITs and ABS. The government has put in place VAT exemption for all transactions related to the transfer of assets into Real Estate Investment Trusts (REITs) and Asset Backed Securities (ABS) thereby, potentially increasing the variety of REITs and ABA products in the market.
(12) Price Stability. Budgets function best if you can adequately predict the movement of prices in the market. As such, the government seeks to ensure price stability with monetary policy targeted to be about 2.5% and fiscal policy to maintain low and stable interest rates, and stable and competitive exchange rates stable.
(13) Business Costs. The government will further reduce cost and/or time of opening and running a business coupled with reducing obstacles to start and operate online businesses thereby, potentially exponentially increasing the opportunities to start business ventures for supplementary income.
(14) Public Servants Salary Harmonization. Still set to begin in July 2017 by SRC.
The bottom line: What can I say? It’s a work-in-progress budget. There really wasn’t much that was new or innovative for the average Kenyan. However, a lot of development work is happening and those that seemed to have been forgotten are slowly coming to the forefront. So let’s raise a glass to that…even though it will cost us a little more this year to do so.
If you’d like read more on the budget, here is the Budget Statement 2017 18.pdf for the Fiscal Year 2017/2018 (1st July – 30th June) By Mr. HENRY K. ROTICH, EGH.