kenya budget analysis seminar diving deep - deloitte · pdf filekenya budget analysis seminar...

© 2015 Deloitte & Touche Budget Analysis Seminar 2015

Kenya Budget Analysis Seminar

June 2015

Diving deep


Economic

Outlook

2


Sub Saharan Africa GDP growth (%)Poised for growth

3

3.6

3.8

4

4.2

4.4

4.6

4.8

2013 2014 2015 2016 2017

• The World Bank forecast has

the region expanding at a

slower pace in 2015, with

growth averaging 4.2 percent, a

downward revision of 0.4

percent

• Prospects in Angola and Nigeria

have deteriorated because of

the sharp drop in the price of oil,

and in South Africa because of

the ongoing difficulty in

overcoming electricity problems


Bullish dollar against African currenciesLCU/US$, percent change, year-to-date

4

Source: Bloomberg


Equity indicesBear Markets all around

5

Nairobi Stock Exchange (NSE 20) Nigeria Stock Exchange (NSE 30)

Egyptian Stock Exchange (EGX 30)South Africa Stock Market

Source: Nigeria Stock Exchange, Trading Economics


Crude Oil prices

6

Source: NASDAQ

•

• However, private consumption growth is

expected to slow in the oil exporters with cuts to

subsidies to alleviate pressure on budget result

in higher fuel costs


A snapshot of the Kenyan EconomyKenya is at the cusp of taking-off…

7

Positive sentiment over the first half of 2015 with analysts saying that the country’s GDP growth rate may even hit the 7% mark

The World Bank notes that external and internal balances are expected to improve significantly due to falling oil prices

Rising geothermal energy will also drive down electricity prices helping to keep inflation in check. Recent finds will reduce oil dependency even further


A snapshot of the Kenyan Economy…But we have to tackle the following challenges

8

Security is still a sticky issue and an

impediment to doing business

Tourism has suffered tremendous setbacks

as a result of the security situation in the

country

The country is likely to begin to go into election mode in 2016. We have to learn how to carry on

with business during elections

The war on corruption and financial

mismanagement has to be won in government

and private sector

The shilling has been weakening in recent

times, falling in May to its lowest point in since

November 2011


Kenyan Economic outlookInflation

9

17.8

5.34.5

14

9.6

5.7

6.886.31

7.08 6.87

0

2

4

6

8

10

12

14

16

18

20

2008 2009 2010 2011 2012 2013 2014 March2015

April 2015 May 2015

Despite the fall of oil prices

locally, inflation has taken

an up-turn with housing,

water, electricity and gas

increasing over the past few

months


Kenyan Economic outlookExchange rates

10

62.7

77.7 75.879.2

86.6 84.7 86.290.6

124.3

112.3

121.9 122.5

135.1 134 134.9140.9

90.2

109.5 108.9105.1

114.2108.7

114.3110.17

0

20

40

60

80

100

120

140

160

2007 2008 2009 2010 2011 2012 2013 2014

USD GBP EURO


Budget Overview

11


Infrastructure

• Standard Gauge Railway, Geothermal Power Development, enhance access to electricity, road network, modernization of harbours and airports

Security

• Lease financing of Police/Prisons motor vehicles, military modernization, Police Security Modernization, Police Medical Insurance Scheme, Police/APs Houses, AMISOM

Agricultural and industrial transformation

• irrigated agriculture, agri-business, flood control measures, food security

Key Highlights - Expenditures

12


Youth and women

• Re-engineering National Youth Services, establishment of National Construction Company, support to SMEs, modernization and expansion of sports facilities

Education

• Free day secondary education, free primary education, sanitary towels for girls in school, school feeding program, increase quality and access to tertiary institutions, support the demand for increased school enrolment, e-learning programs, deployment of ICT learning devices

Health

• Managed equipment services project, free maternal services

Key Highlights - Expenditures

13


Government Spending 2015-16

14

1,280.30

721.30

-

200.00

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

Recurrent spending Development spending

KE

S B

N

64%

13% 12%

36%

Source: Economic Survey 2015


Government Spending 2015-16

15

27

441.5

59.2

31.5

405.4

63

154.6

335.8

112.5

258

35.2

244.9

20.5

18.5

5

79.3

0 50 100 150 200 250 300 350 400 450 500

Parliament

Consolidated Fund Services

Health Ministry

Social Protection,Culture and Recreation

Energy Infrastructure and ICT

Environment Protection,Water & Natural Resources

GJLOS

Education

National Security

County Allocation

CDF

Public Adminstration &International Relations

Economic and Commercial Affairs

Judiciary

Contigencies Fund

Agriculture ,Rural & Urban Development

KES BN

Source: Budget highlights 2015


Kenya Budget 2015-16 Sources of Revenue

16

82.2

142.1

310.3

623.2

18.4

73.7

25.7

72.1

0 100 200 300 400 500 600 700

Import duty

Excise Duty

Value Added Tax

Income Tax

Investment Income

Other Taxes

Railway DevelopmentLevy

Ministerial A-I-A

KES BN

Source: Budget Policy Statement 2015


Tax Collection 2010/11 – 2014/15 by Tax Regime

17

-

100

200

300

400

500

600

Taxes on income,Profits and Capital

Gains

Taxes on property Value Added Tax Taxes on otherGoods and Services

Taxes oninternational trade

transactions

Non-tax revenue

KE

S B

N

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

Source: Economic Survey 2015


Total Tax Revenue 2010/11 – 2014/15

18

626.67 695.89

763.83

945.24

1,130.10

1254.9

-

200.00

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

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

KE

S B

N


Tax Measures

19


Carry forward of tax losses

Residential rental income tax

Tax amnesty for tax payers

earning rental income

CGT on transfer of listed shares to

be taxed under withholding

Corporate Tax

20


Exemption from withholding tax on

payments made by film producers to foreign

actors and crew members

Simplified gaming tax Tax on prize competition

Withholding tax on training services and

contractual fees for the extractive industries

Withholding tax on gains arising from sale

of shares

Withholding Tax

21


Transport & Logistics Industry reprieve

Time limit for filing VAT refund claims

VAT in respect of goods and services purchased for use in film making exempted

ICT exemption for inputs for local assembly

Industrial and Recreational Parks exemption for inputs

Residents returning from countries operating left hand motor vehicles

Value Added Tax

22


Specific import duty rate on sugar doubled

Increase of import duty on plastic tubes for

packing tooth paste and cosmetics, aluminum

milk cans and made up fishing nets

Withdrawal of stay of application of CET rate

on paper and paperboard products

Removal of import duty and stay of CET rate on

gas cylinders

Duty remission on nylon yarn and synthetic twine used in the manufacture

of fishing nets

Remission of import duty on semolina, the

raw material for making pasta

Customs Duty

23


Goods, materials, equipment and other

supplies for official use by prison authorities will be exempt from import

duty

Reduction of Import Declaration Fees (IDF)

Exemption on import of cars by returning

residents

Introduction of a Miscellaneous Fee and

Charges Bill

Harmonization of export duty on raw hides and

skins

The Kenya National Electronic Single Window System

Customs DutyContinued

24


Introduction of a stand-alone Excise Duty

Bill

Change of excise duty tax base to units of

quantity only

Removal of excise duty on bottled water

and goods that have no

harmful effects

Remission of excise duty on beer and wine

Enhancement of excise duty

on non biodegradable

plastics

Excise Duty

25


All classes of fossil fuels to attract

excise duty

Excise duty rate on alcoholic beverages

to be increased marginally

The hybrid tax regime for

cigarettes to be converted into a

specific one

Taxation of motor vehicles and motor

cycles to be changed into a

regime based on classes of age

Excise Duty

26


Tax rebate scheme for apprenticeship programs

Increase in Road Maintenance Levy

Introduction of Tax Procedures Bill

Modernization of the Income Tax Act

Miscellaneous Amendments

27


For banks, minimum core capital to be increased progressively from KES 1 billion to KES 5 billion by December 2018

Removal of requirements for annual licensing for banks and implementation of a non-renewable perpetual licence which CBK can withdraw if necessary

All banks will be required to use the KBRR as a basis for pricing credit

Miscellaneous AmendmentsBanking Sector

28


Increase in the minimum core capital requirements for insurance companies, to KES 600 million for companies underwriting general insurance and KES 400 million for long term insurance business by June 2018

Risk based capital requirements pegged on the risk profile

Principle based investment framework

Removal of oppressive requirements for insurance agents

Miscellaneous AmendmentsInsurance Sector

29


EAC

30


Security InfrastructureRecurrent spending

Health and education

Agriculture not enough

Hydrocarbons and mining

Deficits

EAC – Focus Areas

31


Rwanda

32


Enlargement of tax base through

registration of 6,000 co-operatives

Rwanda - Corporate Tax

33


Stay of application of duty or reduction of duty on the following

• Road tractors/ semi-trailers

• Transport vehicles between 5 to 20 tonnes

• Transport vehicles above 20 tonnes

• Public transport vehicles of between 25 and 50 people and those of above 50 people

• Sugar (less than 70 tons imported)

• Unprocessed rice

• Inputs in telecommunication sector

• Raw materials (as per specified list)

Rwanda - Customs & Excise Duty

34


Improvement of use of the Electronic Billing Machine (EBM) through extending use to other taxes which are yet to be specified

Rwanda - Miscellaneous Amendments

35


Tanzania

36


Decrease of the minimum

tax rate chargeable on

individual employment

income

Tanzania - Personal Tax

37


Decrease in presumptive income tax

Removal of tax exemption on

government projectsExemption of income

arising from bonds issued by the East African Development Bank

Tanzania - Corporate Tax

38


Duty reduction on imported

wheat

Increase duty rate on plastic

tubes

Duty remission on spaghetti raw materials

Stay duty remission on

soap raw materials (LABSA)

Import duty charge on

metal products used in

construction

Import duty reduction on

imported sticks for

manufacturing of matches

Tanzania - Customs & Excise Duty

39


Duty remission on glucose syrup

Duty remission on fish nets

inputs

Increase of specific duty on imported sugar

Increase of specific duty on

imported rice

Stay of duty reduction on

buses to be used in the DRT project

Prisons to be included in the duty exemption

list

Stay of duty exemption in the

armed forces canteens

Tanzania - Customs & Excise Duty

40


Uganda

41


Presumptive tax and formalising the

informal sector

Enforcement of the use of Taxpayer

identification numbers

Thin Capitalization rules amended

Uganda - Corporate Tax

42


Withholding tax on supply of goods

and services

Reduction of WHT rate on re-

insurance premium payments

Uganda - Withholding Tax

43


Uganda – Value Added Tax

44


Adjustment to excise duties

Introduction of excise duty for motor vehicle lubricants, chewing gum, sweets, chocolates and furniture

Removal of excise duty on incoming calls from Kenya, Rwanda and South Sudan

Increase in rates of environmental levy

Uganda – Customs & Excise Duty

45


Introduction and increase of various fees and charges

Uganda - Miscellaneous

46

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