The Government plans to fast track Income Tax Act reforms as well as source funds from the international markets to bridge a Sh40 billion revenue deficit. National Treasury cabinet secretary Henry Rotich yesterday hinted at borrowing from overseas lenders as an option for sourcing funds for infrastructure projects and mitigate against revenue losses the country experienced during electioneering and prolonged drought.
Though he did not indicate when Treasury would tap the global credit market, Rotich said the decision would be informed by certain factors like investors’ appetite for Kenyan debt.
During a briefing on the state of economy in Nairobi yesterday, Rotich defended the government’s borrowing both from local and international markets saying it was within sustained levels of the Gross Domestic Product (GDP) even as critics say the country was soaking up too much debt.
“Currently, we are within sustainable levels of 50 per cent to the GDP compared to some emerging economies such as Ghana which is at more than 70 per cent. We borrow based on the size and capacity of our economy.
As a government we are cautious not to plunge the country into a borrowing distress,” said Rotich. On enhancing revenue base, Rotich confirmed that government and Kenya Revenue Authority would implement tax administrative and legislative to expand the revenue base.
“By end of next week, we will release draft proposals to the income tax law for public input before presenting it to the National Assembly through the Finance Bill of 2018/19,” Rotich confirmed. He maintained that the government will ensure budget deficit is maintained at 6.4 per cent in the current financial year and further reduced to below six per cent in the 2018/19 financial year and four per cent in the medium term.
Mid this year the Government exempted duty on sugar and powder milk imports to stabilise prices and extended a Sh9 billion subsidy programme for maize imports to cushion Kenyans against the high cost of foodstuff.
Tax waivers led to revenue taking a plunge but the subsidies have since been terminated. “The exemptions contributed largely to revenue reduction since May to the end of October even though economic growth slowed down due to delay of investments; effects of the prolonged drought and electioneering,” said Rotich.
Following the end of the subsidies ,50 per cent import duty will be reinstated for maize imports at the end of this month, while sugar sourced from outside the Common Market for Eastern and Southern Africaand East African Community duty will attract a 100 per cent duty. On the economic front, he said the GDP is forecast to rise to more than six per cent next year if political tension and drought ease.
“The country has been remained strong despite the nullification of the presidential election on September 30 . This has been largely supported by the robust economic fundamentals,” he added.
At the same time Rotich dismissed the Nasa motivated boycotts targeting products and services of firms allegedly supporting the Jubilee Party as “misplaced, backward initiative and one that cannot have great impact in the economy”.
“Economic sabotage can only happen if it is being driven from an external front. This is a self defeatist, backward move and completely misplaced. It cannot happen in a progressive country like Kenya,” he said.