Where Treasury Wants to get 40Bn

The Treasury is hoping to raise Sh40 billion from the new tax measures that it introduced on Thursday as it seeks money to meet higher public wage bill demands.

The additional finances will also go to pay for costs associated with implementation of the new Constitution.

Speaking to media on Friday at the Treasury, Finance minister Njeru Githae detailed the new taxation and austerity measures that the government intends to use to raise the Sh40 billion.

The money is over and above the Sh1.4 trillion expenditure outlay presented to Parliament in June.

Among the measures were efforts to increase Kenya Revenue Authority tax collection efficiency in an effort to seal tax leakages that leaves billion of taxes uncollected. 

“Kenyans will agree with me that we are yet to exploit our revenue potential. Many Kenyans do not pay their taxes, while others are doing whatever is possible to minimise their tax liabilities,” Mr Githae noted.

Part of the Sh40 billion will go to fund recurrent expenditure — paying new salaries for teachers and doctors at cost of Sh25.5 billion in the 2012/ 13 financial.

A 10 per cent tax on mobile money transfer fees and tax on financial services introduced through the Finance Bill 2012 are expected to raise at least Sh4.5 billion.

Although the move is expected to increase the cost of money transfer services, as mobile operators pass the new charge to users, the minister said that the law would safeguard against this.

“We do not expect increase in money transfer fees. We will be monitoring to see if they are trying to pass it on to consumers. Service providers should meet this expense themselves,” Mr Githae said.

Ironically, the wage awards to public servants will earn the government an estimated Sh5 billion in Pay As You Earn (PAYE) as thousands of teachers and lecturers migrate to higher tax bracket.

The Treasury is also hopeful that the passage of the VAT Bill 2012 will raise an additional Sh5 billion. The Bill raised furore earlier this year when it was tabled in Parliament with consumer lobby groups saying that it would have a negative impact on food prices.

Mr Githae said that government would be launching a public education campaign on the VAT Bill and also take steps to protect vulnerable groups who might be negatively affected by the Bill.

Kenya’s nascent oil, gas and mineral industries were not spared from the taxman’s net as they will generate Sh1.5 billion.

The Treasury has introduced a simplified withholding tax on prospectors hoping to transfer resource rich property to third parties. He added that the government was carrying out a study on the reintroduction of the capital gains tax.

Surplus funds from public agencies will contribute Sh8 billion to the government. The Treasury says that entities such as the Central Bank of Kenya (CBK), the Insurance Regulatory Authority (IRA), the Communications Commission of Kenya (CCK), the Capital Markets Authority (CMA) and the Retirement Benefits Authority (RBA) have been lax in remitting surplus funds to government.

“I will be instructing all public entities to surrender excess surplus immediately after auditing,” he said.

KRA funding will be increased to two per cent of annual tax collection projections up from 1.5 per cent. The authority has also been allocated Sh2 billion to improve its administrative capacity and also implement an excise tax management system that is expected to help net an extra Sh3.5 billion next year. ollowing the removal of the withholding tax regime, the country’s top 100 VAT payers will undergo an audit to ensure that they pay all taxes due to the government.

A gap of Sh12.5 billion that will remain after all these measures have been implemented will be funded through austerity measures and budget cuts in non-priority areas.

Beyond the Sh40 billion, the Treasury is also looking to raise Sh14 billion through reimbursements made by donors for Kenya’s war in Somalia. The war is expected to have cost the Kenyan government Sh200 million per month.

“I am requesting donors to speed up reimbursement (including considering to scale up) their part support in this critical initiative,” said Mr Githae.

source: The daily Nation - http://www.nation.co.ke/business/news