Kenya National Budget Highlights 2020/2021 by SNDBX Experts


Photo Courtesy of Treasury.go.ke


Introduction


Key points on the 2020/201 National Budget delivered by the Cabinet Secretary (CS) to The National Treasury;

• 2020/2021 budget at KES 3.2 Trillion,

• Deficit of KES 840 billion

• Financing of the budget;

− Total Tax Revenue KES 1.6 trillion

− Grants KES 48.5Billion

− Deficit financing;

External debt KES 347 billion

Net dome stic borrowing KES 493.4 billion

Other net domestic repayment s KES 527 million


This year’s budget theme was “Stimulating the Economy to safeguard livelihoods, jobs, businesses and industrial recovery”.

The budget was prepared against a backdrop of contracting global economy occasioned by the outbreak of the Covid-19 pandemic. To specifically look at Kenya, 2020 has had various challenges such as the impact of desert locust infestation and flooding in addition to the Covid-19 pandemic effects.


The CS outlined that the 2020/21 Budget focus was on the following;

• The roll out of the Economic Stimulus Programme that will catalyse economic activity, provide livelihoods to Kenyans and enable businesses to recover from the adverse effects of Covid-19 pandemic;

• Maintaining macroeconomic stability to support long term investments, economic growth a nd development;

• To support the recovery and growth of Micro, Small and Medium Enterprises through various interventions including operationalisation of Credit Guarantee Scheme;

• Continue supporting the “Big Four” Agenda;

• Enhance the allocations to support development of critical infrastructure in the country such as roads, rail, energy and water, among others, so as to reduce the cost of doing business as well as promote competitiveness;

• Increase resources to support the youth, women and persons with disability to enable them actively contribute to the economic recovery agenda;

To scale up resource allocation to improve access to education, strengthen health care systems and enable cash transfers to support the vulnerable members of our society;

• Facilitate the County Governments in strengthening their systems to enhance service delivery;

• Implement various structural reforms to enhance the efficiency of public service delivery while at the same time ensuring accountability for better macroeconomic and fiscal stability, sustained credit ratings, improved fiscal discipline and minimized corruption.


The CS outlined the 8- points Economic Stimulus Programme that will be geared towards safeguarding livelihoods, jobs, businesses and industrial recovery.

Under this programme the CS outlined how the KES 56.6Billion will be allocated to cater for the various sectors outlined below:


1. Infrastructure

KES 5.0B for rehabilitation of damaged access roads and foot bridges.

• KES 10.0B Kazi Mtaani Program to create job opportunities for 200,000 unemployed youth in the major cities and urban settlements of Nairobi, Mombasa, Kisumu, Eldoret, Nakuru and other major towns across the country who will be engaged in the various infrastructural development projects.


2. Improving access to Education

KES 7.4B to be used for;

• Employment of additional teachers.

• Support local artisans and builders’ businesses that will involve in the construction of additional classrooms in secondary schools.

• Purchase 250,000 locally fabricated desks;

• For capitation and improvement of infrastructure in low cost boarding schools in Arid and Semi-Arid Lands (ASALs) using local labour.

• Recruitment of 10,000 intern teachers to support the 100 percent transition in schools.

• Recruitment of 1,000 ICT interns to support digital learning in public schools.


3. Enhancing Liquidity to Businesses

KES 3.0B seed capital to operationalize the Credit Guarantee Scheme.

KES 10B to cater for outstanding verified VAT refund claims and pending bills owed to businesses, in addition to the KES 23.1B approved by Parliament in April 2020 in the Supplementary Budget.


4. Improving access to health

• KES 1.2B allocated for the recruitment of an additional cohort of 5,000 healthcare workers to enhance Covid 19 response capacity for one year.

• KES 500M for supply of 20,000 locally made beds and beddings to public hospitals.

• KES 25M to support establishment of 50 modern walkthrough sanitizers at all border points and main hospitals across the country.


5. Agriculture and Food Security

KES 3B to subsidize the supply of farm inputs through the e-voucher system to reach 200,000 small scale farmers.

• KES 3.4B for expanded community household irrigation.

• KES 1.5B to assist flower and horticultural farmers to access international markets during this period.


6. Tourism promotion

• Temporary lifting of travel bans allowing for meetings to be held in private hotels by Government agencies.

• KES 3B set aside to renovate facilities and restructuring of business operations by actors in the industry.

• KES 2B to be used as Grants to 160 Community Conservancies, and support to Kenya Wildlife Services to engage 5,500 community scouts for a period of one year.


7. Improving Environment, Water and Sanitation Facilities

• KES 1.0B to support flood control using local labour in the most affected areas.

KES 850M has been allocated to cater for rehabilitation of wells, water pans and underground tanks in ASAL areas using local labour.

• KES 540 million to enhance tree planting programme across the country using locally sourced seedlings.


8. Manufacturing

• KES 600M to purchase locally assembled vehicles has been proposed.

• KES 712M is proposed to provide credit targeted to Micro, Small and Medium Enterprises in the manufacturing sector.


“Big Four Agenda” Actualization

The CS allocated the following funds towards the actualization of the “Big Four Agenda”. Funds allocated

Infrastructure – KES 172.4B

• Universal Health Care (UHC) – KES 111.7B

• Food Security & Nutrition – KES 52.8B

• Manufacturing - KES 18.3B

• Affordable Housing – KES 15.5B









Proposed Tax Measures


We share the proposed tax measures based on the CS’s Budget speech, as such please note that some of the items proposed might change upon the publication of the Finance Act.


Direct Tax


Income Tax

Business earning revenue but are in a tax loss position will be required to pay a minimum tax at a rate of 1% of their gross revenue for that year of income.

• Introduction of a 1.5% Digital Services Tax (DST) on value of transaction on the digital market space. The value of transaction will be based on income earned or accrued in Kenya.

• The residential rental income to be taxed at 10% on rental income of up to KES 15M up from the KES 10M per annum.


Indirect Tax


Value Added Tax (VAT)

The following items are proposed to be exempt from VAT:

• Maize & Corn seeds;

• Ambulance services


Customs Duty

• Import duty of 35% in a wide range of steel and iron products which are available in the region has been maintained for another year.

• Import duty of 25% on some paper and paper board products has been maintained for another year.

• Exemption from import duty of supplies for diagnostic, prevention, treatment and management of epidemic, pandemic and health hazards.

• Remission of import duty on inputs used in the manufacture of baby diapers locally.

• Remission of import duty of inputs for assembly or manufacture of mobile phones.

• Remission on import duty for inputs used in the manufacture of masks, sanitizers, ventilators and personal protective equipment including coveralls and face shields.


Excise Duty

• Proposed downward review of alcoholic percentages of beverages categories for excise duty purposes with a view of collection of more excise duty revenue.


Tax Procedures Act

• Introduction of a voluntary disclosure programme to allow tax payers who in the last five years may have inadvertently made omissions in their tax returns to voluntary disclose the omissions and pay tax due.


Once the principal tax is paid tax payers will be eligible to relief on penalties and interest. To run for a period of 3 years.


Miscellaneous Fees and levies Act

Exemption of Import Declaration Fees (IDF) and Railway Development Levy (RDL) on all good including materials, supplies, equipment machinery and motor vehicles imported for the use by the Kenya Defence Forces and the National Police.


Other Changes


Capital Markets Act

• Amended to provide for the regulation of Private Equity and Venture Capital companies.

• Removal of the function of payment of beneficiaries from collected unclaimed dividends, since this function is domiciled under the Unclaimed Financial Assets Authority.


Retirement Benefits Authority (RBA) Act

Imposition of penalty on pension schemes that fail to submit actuarial valuations reports to the authority within the prescribed period.


Disaster Risk Management Framework

• The Government to develop a harmonized Disaster Risk Management Legal Framework to guide the management of disasters in Kenya.


Building resilience against Climate Change

The National Treasury proposed to tap into the Green Climate Financing by issuing the first “Sovereign Green Bond” to be used to finance major infrastructure projects in the FY 2020/2021. The proceeds to be directed towards green projects at both the National and County level.


Public Road Toll Act

Amended to enable the Public Private Partnership (PPPs) enter into agreements with the Government to collect road tolls on roads constructed and managed under the PPPs agreements.


This publication has been prepared for guidance and does not constitute professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, SNDBX and TruQuantum Ltd, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.



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This article was written by our Tax Expert Eric who leads Truquantum Consulting a consulting company offering tax compliance, tax planning & tax advisory and immigration services to our clients’ day to day business.

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