Kenya Budget Analysis Seminar The story behind the numbers · 2020-05-13 · © 2016 Deloitte &...
Transcript of Kenya Budget Analysis Seminar The story behind the numbers · 2020-05-13 · © 2016 Deloitte &...
© 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
© 2016 Deloitte & Touche Budget Analysis Seminar 2016
Budget Overview
3
Nikhil Hira
© 2016 Deloitte & Touche Budget Analysis Seminar 2016
• 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
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• 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
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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
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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
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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
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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
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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
© 2016 Deloitte & Touche Budget Analysis Seminar 2016
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
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Economic Overview
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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
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Geopolitical friction remains sky high
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Can the caudillo @realdonaldtrump upset the Status Quo?
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Commodities in a tail spin 12 year Bloomberg commodity
index
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Bloomberg commodity index enters a bull market – 7 June
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Africa rising, is it?
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Africa rising, is it?
Maputo, Mozambique 2014
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Mozambique Eurobond
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Big political trends
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Insurgency tail risk continues to grow
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SSA economiesI expect Nigeria, South Africa & Angola to grow by 0%
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Quarter Nigeria South Africa
2015
FY
2.79% 1.3%
2016
Q1
-0.36%
The pillars of SSA growth no longer the pillars
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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.
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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
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Rand Flash Crash
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USD/ZAR
USD/AOA
USD/NGN
USD/KES
African Currencies over 3 Years
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5 Year South African Rand
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Teflon shilling
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Africa Eurobond market is picking winners and losers
10 Year Zambia Eurobond
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The resurgence of Indian Ocean economy
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El-nino: Kenya in a sweet spotSouth Africa, Ethiopia being scorched
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Africa’s Top 10 fastest-growing economies
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We are an oil taker, not
an oil giver
East Africa rising
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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
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Source: WorldBank Database
Kenya election is the elephant in the room growth lower during
election cycle 1991 - 2014
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Growth lower during election cycle
Source: World Bank
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Trend change in current account deficit
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Teflon shilling: A signal in the noise
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10 Year Kenya Eurobond
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Kenya’s Eurobond peak in January
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SGR: to be operational before the next elections
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Magufuli makes his move
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LAPSSET - Not happening anytime soon
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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
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Geothermal Kenya one of the only countries to have
electricity surplus at peak time
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Geothermal
Industrialisation requires cheap power
and cheap transport
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Banking – The new normal
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Uberisation of the economy
The future of the economy is not seen in the rear view mirror
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Uber is the Single
Biggest Taxi service in
Kenya
Digital disruption
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SportPesa - has
expanded
exponentially
Digital downside
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East Africa is on the up
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Direct Tax Measures
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Fred Omondi
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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
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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
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• Savings are higher for lower tax bands
• After income levels reach Kshs 100,000 the savings remain constant at Kshs 607 p.m.
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• WHT on rent paid to resident landlords reduced from 12% to 10%
• Rental withholding tax agents to be appointed by the Commissioner
Withholding Tax
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• 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
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• 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
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• 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
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Indirect Tax Measures
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Lillian Kubebea
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• 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
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• 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
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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
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• 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
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• 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
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East Africa Tax Measures
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Lillian Kubebea and Nikhil Hira
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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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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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
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• 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
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• 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
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• 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
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• Decrease in excise duty on sugar
• Increase in excise duty on fuel and lubricants
Excise Duty - Burundi
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• 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
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• 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
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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
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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
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© 2016 Deloitte & Touche Budget Analysis Seminar 2016
• 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
© 2016 Deloitte & Touche Budget Analysis Seminar 2016
• 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
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Questions and Answers
86
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