The Kenya Budget 2019: Key Highlights

On Thursday 13^th, 2019 Treasury Cabinet Secretary Henry Rotich presented the budget for the 2019/20 financial year before parliament. The following are the main takeaways from the budget estimated at Ksh3.02 trillion.

SME’s

The 2019/20 budget statement has brought a measure of relief to small and medium-sized enterprises (SMEs).

Mr. Rotich proposed a raft of measures aimed at promoting the growth of SMEs such as:

• Amendment of the Banking Act to remove the interest rate cap to encourage lending to SMEs.
• Creation of a bank dedicated to providing loans to SMEs.
• Clearance of pending bills owed to SMEs by the county and national governments by the end of the year.

“The budget tries to build on current successes and to address challenges facing small businesses. Lending to SMEs will be encouraged. The SMEs need to maintain macro-economic stability through the deepening of reforms in the business sector,” said Mr. Rotich said.

Capital Gains Tax

The CS proposed the raising of the capital gains tax by 7.5 percent to 12.5 percent to ensure high net-worth individuals paid taxes on profits earned from the sale of assets.

“After four years of implementation, there is need to review the capital gains tax legislation in order to enhance equity and fairness as well as harmonize the rate with other jurisdictions including the East African community region where the rate ranges from 20 to 30 percent.”

 “Sin Tax”

The Treasury has further raised the excise duty on alcohol and tobacco by 15 percent.

“To boost excise revenues, I propose to increase the rates of excise duty on cigarettes, wines, and spirits by 15 percent,” he said. The increment will be added to the annual price review that adjusts for inflation.

Additionally, betting has also been targeted with gamers required to pay 10 percent of the amount they want to bet up front in excise duty, regardless of whether they win or lose.

Economic growth

Mr. Rotich noted that the country’s economy remains resilient in the face of global and domestic elements, growing by 6.3 percent in 2018 as compared to 4.9 percent in 2017.

“We project growth in 2019 to remain strong at around the same level in 2018.”

On the budgetary deficit, Mr. Rotich said, “In relation to GDP this deficit represents 5.6 percent a decline from 6.8 percent in this financial year and 7.4 percent in the last financial year.”

He added that the deficit would be financed by net domestic financing of Sh283.5 billion and net external financing of Sh324 billion.

Tax for Online Traders

The Treasury CS included new tax measures for e-commerce in his budget statement. He said that e-commerce providers have been included in the tax bracket through amendment of the income tax code.

The main players likely to be affected are SMEs and individuals trading on social media sites.

“I have proposed a raft of tax measures that are aimed at providing the platform for taxation of income generated from the digital economy so as to boost our revenues for inclusive economic development,” said Rotich.

The government has also allocated Sh1 billion to the Ajira Fund to aid the struggling Ajira Digital Programme.

Those already registered are expected to pay Sh10,000 in registration fees to cover the next three years in lieu of paying taxes from January 2020.

Vehicle Assembly

Among the biggest beneficiaries are local vehicle assemblers after the CS decreased excise duty by 10 percent and directed all government entities to procure vehicles from them.

“Mr. Speaker, with effect from July 1, 2019, all ministries, departments, agencies, and other public entities are required to give exclusive preference in procurement of motor vehicles and motorcycles to firms that have assembly plants in Kenya,” said Rotich.

“This will go a long way in spurring the growth of local auxiliary industries and enterprises and create employment opportunities for the youth.”

State Workers

In a raft of tough austerity measures targeted at civil servants, the CS discontinued further employment of non-essential staff and announced mandatory retirement for civil servants that have attained the age of 60.

Also, Treasury announced plans to go over the government payroll in an effort to weed out ghost workers.

Education

The government allocated Sh13.4 billion for free primary education and Sh55.4 billion for free day secondary education.

Other allocations included Sh6.8 billion for the construction and equipping of technical institutions, Sh4 billion for examinations fee waiver for all class eight and form four candidates, Sh4 billion for NHIF Insurance for secondary school students Sh1.5 billion for primary and secondary school infrastructure, and Sh10.3 billion for tuition and tools support to vocational training, Sh3.2 billion for the recruitment of additional teachers, Sh97.7 billion for University Education, and Sh12.6 billion for the Higher Education Loans Board.

Others

Counties were allocated Sh371.6 billion with Sh310 billion for the equitable share and Sh61.6 billion for conditional transfers; including Sh38.7 billion from Kenya’s development partners.

The Big Four Agenda was allocated Sh450.9 billion with Universal Health Coverage receiving Sh47.8 billion.

Affordable housing got Sh10.5 billion to cater for social housing and construction of affordable housing units; including housing units for the Police and Kenya Prison.

The Public Servants Housing Mortgage Scheme was allocated Sh2.3 billion along with Sh5.0 billion allocated for the National Housing Development Fund, as contributions by Government for its employees.

To promote the growth of SMEs in the manufacturing industry, the government allocated Sh1.7 billion. In addition, Sh0.4 billion was allocated to Constituency Industrial Development Centers and Sh1 billion for the modernization of facilities in the Kenya Industrial Research and Development Institute (KIRDI).

Security and Border Protection was allocated Sh326.5 billion for security agencies which include: Sh140.5 billion for the State Department of Interior, Sh37.7 billion for the National Intelligence Service, Sh121.6 billion for Defence, Sh26.9 billion for the Prisons Department.

Included in the allocation to the State Department of Interior is Sh22.8 billion for house allowance for the Police and Prisons, and Sh6.9 billion for Police and Prison Officers Medical Scheme.