Kenya Budget Analysis Seminar The story behind the numbers · 2020-05-13 · © 2016 Deloitte & Touche Budget Analysis Seminar 2016 Kenya Budget Analysis Seminar June 2016 The story

© 2016 Deloitte & Touche Budget Analysis Seminar 2016

Kenya Budget Analysis Seminar

June 2016

The story behind the numbers

Budget Analysis Seminar 2016 © 2016 Deloitte & Touche

• Budget overview

• Economic overview

• Direct tax measures

• Indirect tax measures

• East Africa tax measures

• Questions & answers

Contents

2


Budget Overview

3

Nikhil Hira


• Infrastructure – Continued investment in the Standard Gauge Railway, power

generation and access, road network, harbours and airports

• Security – housing welfare, continued vehicle acquisition and enhancing and

modernizing security operations

• Agricultural and industrial transformation – continued investment in irrigated

agriculture, agricultural insurance fund, revive and revamp sleeping sectors

Key highlights - expenditures

4


• Youth and women – Increased allocations to the Uwezo and the Youth and

Women Enterprise Fund

• Education –Free primary and secondary education, sanitary towels for girls in

school, digital literacy programmes and teacher capacity building programmes

• Health - Continuing free maternal health care and scaled up supply of

specialized medical equipment to hospitals

Key highlights - expenditures

5


Government spending

6

1,168.00

809.00

285.00

1,102.00

718.00

264.00

-

200.00

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

CG Recurrent Spending CG Development Spending County Allocations

KE

S B

N

2016/17 2015/16


Government spending

7

0 100 200 300 400 500 600

Contigencies Fund

Economic and Commercial Affairs

Parliament

Social Protection,Culture and Recreation

CDF

Health Ministry

Agriculture ,Rural & Urban Development

Environment Protection,Water & Natural Resources

National Security

GJLOS

Public Adminstration &International Relations

County Allocation

Education

Energy Infrastructure and ICT

2015/16

2016/17


Budget sources of revenue

8

0 100 200 300 400 500 600 700

Investment Income

Railway DevelopmentLevy

Other Taxes

Ministerial A-I-A

Import duty

Excise Duty

Value Added Tax

Income Tax

2015/16

2016/17


Tax collection 2010/11 to 2014/15

9

-

100

200

300

400

500

600

Taxes onincome, Profits

and CapitalGains

Taxes onproperty

Value Added Tax Taxes on otherGoods andServices

Taxes oninternational

tradetransactions

Non-tax revenue

KE

S B

N

2010/11 2011/12 2012/13 2013/14 2014/15


Total tax revenues 2010/11 to 2016/17

10

627696

764

945

1,130

1,254

1,370

0

200

400

600

800

1000

1200

1400

1600

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

KE

S B

N


Item Kenya Tanzania Uganda Rwanda Burundi

GDP ( 2014) in Billions USD 60.94 USD 48.06 USD 27.00 USD 7.8 USD 3.09

Population (2014) in

Millions

44.86 51.82 37.78 11.34 10.84

GDP growth rate 2015

(Estimated)

5.6% 6.9% 5.2% 6.5% -7.0%

Projected expenditure

2016 in Billions

22.4 13.5 7.9 2.6 0.8

EAC quick facts

11


Economic Overview

12

Aly Khan

CEO Rich Management Limited

"As a macro investor,

my job for 30 years

was to anticipate

changes in the

economic trends that

were not expected by

others - and therefore

not yet reflected in

securities prices".

Stanley Druckenmiller


Geopolitical friction remains sky high


Can the caudillo @realdonaldtrump upset the Status Quo?


Commodities in a tail spin 12 year Bloomberg commodity

index


Bloomberg commodity index enters a bull market – 7 June


Africa rising, is it?


Africa rising, is it?

Maputo, Mozambique 2014


Mozambique Eurobond


Big political trends


Insurgency tail risk continues to grow


SSA economiesI expect Nigeria, South Africa & Angola to grow by 0%


Quarter Nigeria South Africa

2015

FY

2.79% 1.3%

2016

Q1

-0.36%

The pillars of SSA growth no longer the pillars


The pillars of SSA growth no longer the pillars

• “We are in the part of the cycle when the economies slow down and

administrations have to take tough measures,” said Pablo Cisilino, “Situations

like that require being more on the ground, to be there to understand what’s

happening.”

• The result is a dramatic shift: firms now have analysts learn the names of

politicians, prosecutors and supreme court justices, double the number of trips,

scan prices at foreign supermarkets, track footprints at stores, and read facial

expressions of policy makers. Global fragility, they say, is unveiling institutional

weakness, graft, poor governance, and low labor productivity -- and they need

to track them all.


I find it just

extraordinary that

such a brilliant

president @mbuhari

would risk it all on a

bet on a single

number in a game of

roulette. Those are

the odds

Nigeria hurtling towards disruption

President Buhari is increasing the risk of a disorderly breakdown

President Zuma and Zupta economics


Rand Flash Crash


USD/ZAR

USD/AOA

USD/NGN

USD/KES

African Currencies over 3 Years


5 Year South African Rand


Teflon shilling


Africa Eurobond market is picking winners and losers

10 Year Zambia Eurobond


The resurgence of Indian Ocean economy


El-nino: Kenya in a sweet spotSouth Africa, Ethiopia being scorched


Africa’s Top 10 fastest-growing economies


We are an oil taker, not

an oil giver

East Africa rising


Country 2016 2017

Kenya 6.0 6.1

Tanzania 6.9 6.8

Uganda 5.3 5.7

Ethiopia 4.5 7.0

IMF GDP forecasts – April 2016


Source: WorldBank Database

Kenya election is the elephant in the room growth lower during

election cycle 1991 - 2014


Growth lower during election cycle

Source: World Bank


Trend change in current account deficit


Teflon shilling: A signal in the noise


10 Year Kenya Eurobond


Kenya’s Eurobond peak in January


SGR: to be operational before the next elections


Magufuli makes his move


LAPSSET - Not happening anytime soon


Quarter Agriculture Mining

&

Quarrying

Manufact

uring

Electricity

&

Water

Supply

Construct

ion

Wholesale

&

Retail

Trade

Accommo

dation

&

Restauran

t

Transport

and

Storage

Informatio

n

&

Communi

cation

1 2.9 5.7 4.1 7.4 12.6 6.4 -11.4 6.7 8.6

2 4.0 8.6 5.1 9.2 11.2 5.2 -5.0 6.8 7.0

3 5.5 13.7 3.3 10.0 15.6 6.2 -6.5 9.4 8.2

4 11.8 16.3 1.2 1.8 14.9 6.0 21.2 5.5 5.9

Kenya 2015 GDP growth ratesConstant 2009 prices


Geothermal Kenya one of the only countries to have

electricity surplus at peak time


Geothermal

Industrialisation requires cheap power

and cheap transport


Banking – The new normal


Uberisation of the economy

The future of the economy is not seen in the rear view mirror

52


Uber is the Single

Biggest Taxi service in

Kenya

Digital disruption

53


SportPesa - has

expanded

exponentially

Digital downside

54


East Africa is on the up


Direct Tax Measures

56

Fred Omondi


Corporate Tax

• Corporate tax for affordable housing developers reduced to 20%

• Interest on bonds issued by the EADB exempt from tax

• No CGT on transfer of assets between spouses

• Gross annual rental income less than Kshs 144,000 not taxable

• Rules implementing the tax rebate for the apprenticeship scheme now gazetted

Personal Tax

• Presumptive tax for the informal sector considered

• Tax reprieve on bonus, overtime and retirement benefits to low income earners

• Personal relief increased from Kshs 1,162 to Kshs 1,280 per month

Income Tax

57


Salary per Month Tax Payable under Current Band Tax payable Proposed Band Effective Percentage Change

15,000 580 413 29%

25,000 2,334 2,077 11%

50,000 8,932 7,965 11%

100,000 23,932 23,326 3%

150,000 38,932 38,326 2%

1,000,000 293,932 293,326 0%

Effect of the proposed PAYE bands

58

• Savings are higher for lower tax bands

• After income levels reach Kshs 100,000 the savings remain constant at Kshs 607 p.m.


• WHT on rent paid to resident landlords reduced from 12% to 10%

• Rental withholding tax agents to be appointed by the Commissioner

Withholding Tax

59


• Review of the Income Tax Act to commence

• Tax agents committee to recommend tax agents to be licensed established

• Commissioner empowered to ask for information from third parties for iTax

• Tax amnesty for income and assets held abroad

• Allow retirement schemes to establish separate medical funds to enable

members to contribute for their medical cover at retirement

• New bills to facilitate the growth and stability of the financial sector - The

Financial Services Authority Bill, the Nairobi International Financial Centre Bill

and the Moveable Property Security Rights Bill

Miscellaneous issues

60


• Banking sector capitalization to be reintroduced for reconsideration

• Increased penalties for violating the Banking Act

• The Banking Act and the Sacco Societies Act will be amended to facilitate more

effective participation in the credit information sharing framework

• Only licensed Deposit Taking SACCOs to use the acronyms deposit taking

SACCO Society (DTS) or DT-SACCO

Miscellaneous issues Banking sector

61


• Allowable forms of capital to be increased

• Reduced maximum time to settle insurance claims

• Amendments to anchor Sharia compliant or Takaful insurance products

Miscellaneous issuesInsurance sector

62


Indirect Tax Measures

63

Lillian Kubebea


• Garments and leather footwear procured from EPZs

• Raw materials used in the manufacture of animal feeds

• Fees charged for entry into the National parks

• Commissions earned by tour operators

• Liquefied Petroleum Gas

• VAT exemption on petroleum products extended

Value Added TaxVAT exemption introduced on the following items

64


• Excise duty on kerosene at KES 7.205 per litre

• Excise duty at 10% on cosmetics and beauty products

• Revised the excise duty regime on motor vehicles from specific to ad valorem

• Removal of excise duty on ordinary water

• Reprieve from tax for aid funded project materials, equipment and motor

vehicles

• Excise duty on all plastic bags except vacuum bags for packing foods items

Excise Duty

65


Customs DutyDuty remission on the following

• Inputs for manufacture of matches

• Nylon yarn

• Trigger sprays and lotion pumps

• Motor cycle kits

• Wheat grain

• Inputs for manufacture of solar

equipment and deep cycle batteries

66

• Bar and bar rods for manufacture of

automobile accessories

• Aluminum plates and sheets for

manufacture of cans

• Inputs for agriculture equipment

• Raw sugar for refining into industrial

sugar

• Industrial sugar


• Extension of stay of application of the CET on rice, paper and paperboard

products and gas cylinders

• Grant of stay of application on the following products

− Iron and steel structures, screws bolts and nuts at 25% or USD 250/MT

whichever is higher instead of 10%

− Revenue stamps at 25% instead of 0% and

− Made up garments and footwear from EPZ at 0% instead of 25%

Customs Duty

67


East Africa Tax Measures

68

Lillian Kubebea and Nikhil Hira


Customs Duty Import duty increased from 0% to 25% on

• Bridges and bridge sections

• Tower and lattice masts

• Screws, bolts & nuts

• Prefabricated buildings

• Equipment for scaffolding, shuttering,

propping or pit propping

69

• Various bars and rods of iron or non-

alloy steel

• Made up fishing nets

• Smart cards and sim cards

• Aluminums cans and

• Oil, petrol and air filters


• Increased import duty on specific iron and steel products from 0% to 10%

• Increased import duty on worn articles from USD 0.20/Kg to USD 0.40/kg

• Specific duty rate of USD 200/MT on a wide range of iron and steel products

• Reduced import duty on energy efficient stoves from 25% to 10%

Customs Duty

70


• Incinerators for use in hospitals

• Blood collection tubes

• Refrigeration equipment for use in hospital and county mortuaries and

• HVAC air conditioning equipment for manufacturers of pharmaceuticals

Customs Duty Exemption from import duty on the following

71


• Uniform for hospital staff

• Spare parts and accessories for solar equipment and

• Inputs for manufacture of agricultural equipment – moved to remission scheme

Customs Duty Removal of exemption from import duty on the following items

72


• Grant of stay of application of the CET on

− Cement at 35% instead of 25%

− Iron and steel products of 7308.10.00 at 0% instead of 25%

− Crude edible oil at 10% instead of 0%

− Automotive bolts and nuts at 10% instead of 25% and

− Wheat grain at 10% instead of 35%

• Extension of stay of application on Paper products at 10% instead of 25%

• Duty remission to be progressively reduced on sugar and sugar confectionery

Customs Duty- Tanzania

73


• Some items excluded from preferential treatment under the COMESA treaty

including:

− Electronics

− Lubricants

− Un-denatured alcohol

− Steel and steel products

− Paper and paper products and

− Diapers

Customs Duty - Uganda

74


Reduction of import duty rate on:

• Road tractors, tank trailers ,public transport vehicles and transport vehicles

• Sugar, wheat and hard grain

• Specified raw material

• Raw materials for ICT equipment

Customs Duty - Rwanda

75


• Removal of customs duties on mobile phone appliances such as chargers,

earphones, batteries

• Introduction of an additional fee of 20% on mineral and aerated waters

Customs Duty - Burundi

76


• 5% inflationary adjustment on specific excise duty rates except for bottled water

and petroleum products

• Increase in excise duty rates on:

− Alcoholic and Non-alcoholic beverages

− Cigarettes and other tobacco products

− Natural gas, lubricating greases and oils

• Introduction of excise duty on mobile money transfer commissions at 10%

Excise Duty - Tanzania

77

• Excise duty paid on goods used in the manufacture of healthcare and medical

products refundable

• Increase in excise duty on the following:

− Ready to drink spirits

− Cigarettes and other tobacco products

− Cement

− Cane or beet sugar and pure sucrose

− Petrol, diesel and motor vehicles lubricants

− Sugar confectionaries (chewing gum, sweets and chocolate)

• Excise duty on all incoming international calls abolished

• Specialized hospital furniture exempted from excise duty

Excise Duty - Uganda

78


• Decrease in excise duty on sugar

• Increase in excise duty on fuel and lubricants

Excise Duty - Burundi

79


• VAT registration now possible for anticipated petroleum midstream activities

• Fluorescent and LED bulbs subject to VAT at 18%

• New mechanism to eliminate VAT on Donor - funded projects

• Input VAT on imported services for Business process outsourcing companies

now claimable

• Solar power is now a standard rated supply

• VAT exemption on supplies to geothermal /solar power project contractors and

subcontractors

• Expanded the list of agricultural processing equipment exempt from VAT

Value Added Tax - Uganda

80


• Unprocessed agricultural products now exempt from VAT

• Water treatment chemicals on approval exempt from VAT

• Specified bitumen products exempt from VAT

• Insurance services for the aviation industry exempt from VAT

• Most tourism services now subject to VAT

• Financial services except interest payments are now subject to VAT

Value Added Tax - Tanzania

81


Corporate Tax

• Revision of anti-treaty abuse provisions

• Revisions in presumptive tax rates for drug shop owners

• Petroleum operations expanded to include exploration, production and

midstream activities

• Aligned the Income Tax Act limitations on petroleum operations deductions to

PSC terms

Personal Tax

• Resident nationals employed by diplomatic missions must now submit individual

Income Tax returns

Income Tax - Uganda

82


Corporate Tax

• CGT on the share disposals by non-resident shareholders controlling less than

25% of a Tanzanian resident entity

Personal Tax

• Lowest band PAYE rate reduced to 9% from 11%

• MPs gratuity payment at end of term now subject to PAYE

Income Tax - Tanzania

83


• WHT at 2 % on shipping and air transport payments

• 5% WHT on payments for qualifying international telecommunication services

• Rent payments to non-residents now subject to WHT

Withholding Tax - Uganda

84


• WHT on rent and interest payments to retirement funds

• Commissioner can now determine the minimum market value for purposes of

WHT on rental income

Withholding Tax - Tanzania

85


Questions and Answers

86

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Documents

Kenya Budget Analysis Seminar The story behind the numbers · 2020-05-13 · © 2016 Deloitte & Touche Budget Analysis Seminar 2016 Kenya Budget Analysis Seminar June 2016 The story