Compared to the lofty 2007 Kenya budget, this one came at a serious time when the country had almost reversed gains made over the last five years, according to the Minister.

Challenges: regional disparities, poverty, youth employment low agriculture productivity, transport during crisis raised food prices, and containing inflation

Targets: 10% economic growth by 2012, Kenya to be a Middle income country by 2030, Social income reforms, develop a democratic issue-based political system and a higher quality of life

some excerpts

– Airlines: For Kenya airways: zero rate on international air travel no VAT on tickets?

Banking
– increase share capital from 250 million and 300m to 1 billion over 2 years(parliament rejected this last year) and can’t pay dividends till adequate provisions are made.
– 5 development finance institutions to be restructured, as will Postbank and the agriculture finance corporation. National bank will be privatized (further)
– CBK can penalize forex bureaus for violations
– Fate of unclaimed deposits to be decided by a task force to be formed

– BRIC China and India will keep food and oil high, but there are regional Africa opportunities

Capital markets
– NSE reporting: companies like Safaricom and kengen can publish their notices and accounts in two daily newspapers as opposed to mailing each shareholder a copy
– Insurance companies can invest 10% in any listed company – up from the previous 5% ceiling
– Annuities to publish quarterly returns
– Asset backed securities rules will be gazetted to encourage particplants
– Share capital of stockbrokers and i-banks raised to 50 million and 250 million respectively as anyone owing more than 25% barred from running the companies (3 years to comply). They must also get indemnity insurance for failure of employees
– CMA to get more power to seize assets

CDF: CDF benefits not tricked down due to poor management and there will be more accountability to reduce duplication. does that mean less funds for CDF now?

Education
– 1.56 billion towards teacher employment
– Teachers kids’ education now not a taxable benefit for employers and teachers

Energy
– NOCK (parastatal) expanded to stabilize petrol prices
– clean energy: 4 billion for geothermal, 300 million solar electricity generated to supply 74 public institutions, 200m for wind power generation
– 6.8 billion for rural electrification (to develop mini grids) which will reduce rural urban migration.

Food prices
Minister says food price beyond the control of government
– Maize imports duty free
– talks to set up a regional fertilizer factory with Uganda and Tanzania
– 744 million for agric extension programs
– zero duty on bread and rice
– duty reduced from 35 to 10% for one year on wheat imports
– no duty on insulated tankers for milk transport

Health
– more nurses to be hired
– 550 million to support guardians of HIV orphans and this will benefit 30,000 households – up from the current 2,500

Housing
– Housing bill, landlord & tenant bill coming
– 350 million to construct 200,000 low cost housing units using appropriate building technology
– 500 million for infrastructure in slums
– National housing corp: relief for buyers of their houses – up to 150,000 p.a.

ICT
– 900 million shillings to develop a business process outsourcing park in Nairobi (BPO) which may create 10,000 jobs
– 700 million towards completion of Under sea cable improve bandwidth quality, reduce costs of communications.
– Remove import duty on telecommunication equipment as well as on printers

Land
– No stamp duty transfer for land transfer by individuals to companies wholly owned by families

licensing:
– communication commission of Kenya will reduce the number of licenses offered from 300 to 16 from July 2008, Ministry of tourism reduces from 25 to 2, Mines & geology 24 to 8, Betting control 26 to 9, Forestry from 15 to 11
– Business regulatory reform commission to be created

Manufacturing
– Remove import duty on hot rolled steel (was 10%)
– New 10% tax sodium sulphate, epoxy resin) to protect local producers
– Reduce import duty on cement form 40% to 25%
– Tax on plastics: manufacturer’s can apply to get refunds of this tax get in line

Northern Kenya
– 2.9 billion shillings to the arid and semi arid areas rehabilitation through various ministries: this will include water, abattoirs, school feeding programs, rural electrification, livestock support
– also 900 million for the garissa garsen hola road (done by NYS) and for 200m improve marsabit and maralal water supplies

Parliament
– the Minister was interrupted for not sharing budget information for MP’s in good time
-The Minister later asked members of parliament and constitution office holders to pay their share of income taxes

Ports:
– Mombasa port will be expanded with 20 billion of Japanese funds to allow bigger ships
– Free port at Mombasa to be set up (like Dubai) which should create jobs for the youth

Privatizations more coming to fix budget shortfall

Railway: Government wants Rift Valley Railways to increase capacity, lay more tracks, and transfer cargo.

Retirees: No tax on all pensions for those over 65 years

Roads:
– 65 billion shillings to be spent
– Build Athi river-namanga, mau summit – kericho, Nairobi to Thika
– Register all road contractors, engineers, quantity surveyors
– Long term infrastructure bond

Security:
– More funds for police force salaries, and equipment to fight crime
– Organized crimes bill to control gangs and militia and an anti money laundering bill coming to parliament
– 2.8 billion for new housing for police and prisons staff

Shilling central bank will not be intervening to adjust exchange rates

Sin taxes: beer and alcohol to cost more

Sports & arts
– Artist and sportsmen; any tax paid abroad can be used to offset against tax in Kenya if they show evidence of payment
– National football competition in every constituency (1 million shillings per constituency for purchase of kit and balls)

Tourism: budget 26% up
– 600 million to KTB to promote Kenya
– Exempt import duty gym equipment for hotel industry

Youth employment
– Absorb NYS graduates into armed forces
– Youth enterprise fund gets another 500 million
– 465 million for free tuition in vocational colleges from January 2009
– The 900 million shilling garissa hola road will be built by NYS who will also get contracts to fix dams across country – and who will also employ local youth

Water & environment
– 26% water budget improvement
– 1 billion towards multipurpose dams (built by NYS)
– 2nd mzima springs project to supply Mombasa with water.
– program to clean up Nairobi river
– Remove import duty on garbage collection trucks

Vehicles
– motorbikes: Zero VAT to motorcycles less than 250cc
– Vehicles to be registered as soon as they arrive in the country to prevent diversion of transit vehicles to local market

6.5 to 7% economic growth expected in 2007/08 and the budget will focus on strengthening the financial sector, reducing the cost of doing business, enhanced productivity and fixing infrastructure.

Some measure mentioned in the budget speech today (only heard 1/2 of it) include:

alcoholduty up on spirits, wine and some beer
auto spares Reduce import duty 25 to 10% for oil filter, but with increased excise duty on imported used spares
Banks minimum share capital increased from 250 million to 1 billion (over the next 3 years) and benchmarks will be set up to be adhered to
battery to protect local battery companies, a duty imposed on imported recycled batteries
Cigarettes tax up
east African investors get the same treatment as Kenyans, – i.e. withholding tax of 5% on dividends and improved allocation chances (will be treated same as Kenyan in pool expanded form 25 to 40%)
energy rural electrification to be continued as mini grids will be set up in large towns. 8 billion has been allocated to deal with (anticipated?) energy shortages so they don’t hamper manufacturing processes and the government will also complete the oil pipeline to Uganda and refurbish the refinery at Mombasa (even though other shareholders have refused to chip in)
Educationincreased funding for free secondary education, implement increased teacher salary agreement and hire 7,000 new teachers
hawkers 400m to be spent to construct a market for them in Nairobi
ICT 1 billion ($15 million) for TEAMS which is expected to be completed in mid-2008. Also a national fibre optic network will be in place to reduce the cost of communications. In addition a 200m ($3m) endowment fund for innovation and research will be set up and the private sector invited to top it up.
insurance companies minimum share capital raised. For Long term (50m to 150m), general (100m to 300m) and composite from (150m to 450m) – within 3 years.
leasing: Zero rate leasing of some equipment and removal of withholding tax requirement
licenses for businesses – eliminate 205, reform 371 others
Medical equipment duty removed
milkZero rate milk powder to promote local processing and value addition
mineral water tax imposed
police 25,000 new officers to be hired
plastic bags tax imposed while thin plastic bags are banned to improve the environment.
Privatization 36.1b shillings ($0.5 billion) expected from privatization: Telkom Kenya (get a strategic partner this month), Safaricom IPO on the NSE, more shares sold of Kengen (when price corrects) and National bank [these shares could be offloaded to 3rd parties and not through the exchange]
Pyrethrumextracts are zero rated to promote local insecticide production
real estate duty exemption for developed of low cost housing (but not in slums). Also pension savings can now be used as security for home loans (not just as down payment)
retirees monthly pension benefits will be exempt from tax. Also social security will accept voluntary contributions from those whose employers don’t take part
sugar development levy removed from imported industrial sugar
textiles removed import duty
trade import duty reduced from 2.75% to 2.25% for all goods from all outside east Africa and none from within east Africa
transportation removed TLB from non passenger commercial vehicles,
Tourism 2 million visitors expected this year and as benefited the local air and hotel sectors. Will develop eco and lake tourism and will create resorts in Mombasa, Turkana and Isiolo.
universities (private) duty removed on goods and services supplied to them
VAT refunds to speed up refunds (which business community has complained about), will become automatic for those companies with a proven track record
women a 2 billion shilling ($30 million) women enterprise fund to be set up – starting with 1 billion this coming year, and call on corporates to assist the fund.
youth fund allocation increase by 250m to 1.25 billion with a goal of taking it to 2 billion

To gauge the importance of the budget speech given today, it is useful to look at 2005/06 budget speech from last year. Minister Kimunya gave his first budget speech as Minister, which was a progression from his predecessor, Minister Mwiraria who resigned at the beginning of the year.

He has several popular positions: He will have correctly read the mood of the country leading to the 2007 elections, the resentment the public has for ever fattening MP allowance packages, and also noticed the Rwanda example in cutting back on government limousines, while at the same time having to keep the government moving on taxes, without factoring in donor support. Again, he depends on Parliament to pass several bills to enable the government to meet its goals.

Economy
Has grown for 3 straight years, hitting 5.8% with 460,000 new jobs created last year. That statement by the Minister produced groans from MP’s within the first 2 minutes of his speech prompting Speaker Kaparo to ask them to wait and comment on the truth of that statement later. The Minister however noted that the rich – poor gap was unacceptably high. He called on the private sector to lead economic growth while admitting that the government had gotten embroiled in some scandals, from which they had learnt their lesson.
Outlook GDP to increase by 5.8%
Jobs 1.4m new jobs created over the last 3 years
Inflation
– T-bill rates stable at 8 to 8.5%, even though the trade deficit has widened
– He expects inflation to decline to 5% by year end from 13% in May
– Government will stick to the 29.5 billion shilling borrowing limit
– Increase money supply by 10% by next June
Alleviate poverty: Budget allocation to health, agriculture, rural development, education and infrastructure sectors combined increased from 60.7 to 62.7% and to 66.5% next year.
Taxes, not Donors: As with Mwiraria, he is not factoring in donor funding. Therefore it’s importance to maintain revenue growth (i.e. though taxation). He also thanked taxpayers for their contributions several times during his speech.

Investors
Bonds and the NSE
– Country will fund infrastructure projects through bonds
– The government will encourage parstatals with good cash flows to develop bonds to support their funding requirements
– Asset backed securities for infrastructure will be exempt from income tax
– All listing costs on the NSE to be tax deductible
– Exempted interest income for bonds for infrastructure and social services with at least 3 years maturity
– Also tax deduction to support the creation of ESOP’s. (Employees ownership programs)
– Dividends unclaimed after 7 years will be transferred from companies back to the CMA investor compensation fund – from where investors can claim it if/when they ever resurface

Real Estate Property owners took a major hit with the government now re-introducing capital gains tax on the transfer of property. However generous deductions were put back for 1st time home owners and mortgage buyers.

Member of Parliamnent
Happy
– CDF up by 40% from 7.2b to 10 billion per year. This is an increase from 2.5 to 3% of national collection (but much less than the 7.5% MP’s are demanding)
– LATF will increase and each constituency will have about 40 – 50m each year with about 11m for roads (and MP’s are in charge of this). They will also get extra funds for bursaries and police stations.
– The minister advised MP’s to use the funds carefully as it will affect how they will be judged by their constituents in the 2007 elections
– Funding for political parties allowed
Sad
Their salary and entertainment allowances in addition to that of other constitutional office holders will now be taxed.

Government spending
– 461b budgeted (26% of GDP) for the year and Kimunya called on officers to use scarce resources efficiently
– 2/3 of the wage bill goes to health and education
Monster trucks banned
– New transport policy for public service goes into effect on July 1 which will reduce cars pools expect for key sectors such as police and health
– Ministers, their assistant and permanent secretaries will have just 1 official car
– No use of official vehicles to and from duty (wheelbarrow maybe?)
– The Government will dispose of extra vehicles by 30 September
– No provision for purchase of motor vehicles this year – and constitutional offices must first get approval from treasury

Banking/financial sector
– Government intends to reduce discrimination in the sector by amending the banking act. This will allow for institutions like Muslim banks which will lower the cost of banking
– He will create an independent insurance authority
– He will also create an independent authority for micro finance institutions
– The central bank of Kenya (CBK) will have an independent chairman – and the governor (who currently chairs the board) will be an ‘MD’ who is answerable to board
– Lease financing: Generous waivers wer given for this, but still subject to withholding tax

Privatization
In 2006 – 07 the government will;
– Restructure and privatize Telkom and NBK
– Sell government shareholding in Mumias and Kenya Re
– License a second national telephone operator and other gateway licensees
– Concession the Mombasa port

Corruption
– Government will hire more lawyers
– National anti-corruption plan to be launched next month with measurable indicators
– Findings and recommendations on Anglo Leasing and Goldenberg investigations to be implemented

Improve Business
– KPA, KRA, KBS and Police will now work 24 hours at the port of Mombasa to ease congestion
– KPA, KRA, KBS license costs to be rationalised
– Of the existing 1,300 business licences, 150 to be eliminated and 700 simplified.

Taxation
– reduced VAT burden – any business with a turnover of less than 5 million is exempt from VAT registration
– monthly allocation for VAT refunds will go up by 46% to 900m which should cover legitimate refunds
– priority will be given to businesses who are electronic tax register (ETR) compliant. Also companies not ETR compliant after December 31 will not be allowed to recover the cost of installation from VAT and will have to foot the bill for ETR
– He will curb fake refund claim by penalising a person twice the fraudulent claim lodged and a 3 year prison term
– Motorists: No more road licenses for vehicles. This tax will be recovered from fuel charges effective tonight

Infrastructure
– Quarterly reports will be given to the public on roads progress
– 3 new roads bodies created
– Set standards for road construction and contractors who don’t meet this will be blacklisted

Sin Taxes
– All up are tax up on portable spirits, excise tax on wines and spirits and excise tax on malt beer However Excise tax removed on non malt beers i.e. Senator which will cost as little as a soda.
– Cigarettes tax up by 10%

Insurance
– Insurance tax down
– Limit to be set for accident compensation
– Brokers to remit cash immediately to insurance companies

Others
Kenyans Emigrants will be allowed to collect their full retirement benefits when they leave the country. The rest of us have to wait till 55 years to access employer’s contribution to our pension.
– bread zero rated wheat flour which should lower the price of bread
– mothers zero rated diapers napkins feeding bottles
– bicycles zero duty on unassembled bicycle imported by local assemblers. Also reduced duty on assembled ones (and motorbikes ) from 25% to 10%
– solar No import duty on solar equipment (including batteries). Also removed duty on energy saving bulbs
– computers Removed VAT on computers, parts and accessories.
– agriculture Zero rated tractor tyres and parts, transportation of agricultural produce. Also Sugar levy burden will be borne by growers not consumers after January 1. This will make cane growers more vigilant on the use of the funds.
– Youth Increased allocation for the youth ministry, polytechnic and the NYS. Also 1 youth polytechnic will be set up in each constituency
– Entertainers Kenyan ‘artistes’ in sports, music, and drama are exempted from paying VAT.