Budget 2005/06

The budget is over-rated speech, but it communicates the direction the government intends to take. As usual, it calls on MP’s to pass several bills that are crucial for the government to meet its stated goals.

Numbers
- In the Minister’s first sentence he mentioned the controversial new 4.3% economic growth rate of the country.

Higher Interest Rates
To control inflation monetary policy will be tightened to bring credit expansion to a more sustainable pace. These echoes sentiments by the Central Bank Governor who has repeatedly said that the level of bank borrowing by the private sector has been worrying, and that he intends to raise interest rates to slow it down. In March 2005, bank lending to the private sector increased by 25% and half of that was to households (compare that to a 7% decrease in lending to the government)

Donors
Expecting net external financing from both bilateral and multilateral development partners of Kshs.23.4 billion. In the event that the bilateral partners provide any budgetary support it will be used to reduce government domestic borrowing and to upscale spending on core poverty programmes. The government will borrow 25.3 billion from the domestic market this year

For Investors
- Fewer licences to start business following the abolition of 17 licences. Currently, there are about 600 licences in Kenya that directly affect trade and investments. The government will also amend 30 others.
- To encourage more investors at the Nairobi Stock Exchange, newly listed companies will pay corporation tax at a lower rate of 20%, for a period of 5 years, provided these companies offer at least 40% of their shares to the Kenyan public. (corporate tax is 30% now)
- Investment income from Special Purpose Vehicles (SPVs) for purposes of issuing asset backed securities will be exempt from income tax.

For Mwananchi
- Minimum income to be taxed in a year raised from 24,000 to 36,000 shillings
- No duty on medicine, diapers, sanitary pads, cooking gas coal, media containing computer software, safety belts, and speed governors,
- Beer, spirits and cigarettes up 10%
- Duty on mitumba (used clothing) be 45% or US 30 cents per kg, whichever is higher
- Maize flour, milk and kerosene will be cheaper since they will be zero-rated
- Refrigerated trucks and hotel equipment exempted from duty.

Women
A married woman can now file a separate tax return to report all her sources of income without exception. Before she could only file on certain sources of income

Car Owners
- Computation of wear and tear (depreciation) for private motor vehicles increased from 1 million to 2 million
- No duty on safety belts and speed governors
- Excise duty, which used to range from 20% to 60% will now be a flat 20% regardless of engine capacity.

Home Owners
- Mortgage interest relief increased from Kshs.100,000 to Kshs.150,000.

Government Expenses

Wages
- The Government wage bill consumes up to 40% of ordinary revenues, or over 8% of GDP.
- Wages, together with other non-discretionary expenditures such as debt service payments and pensions obligations, take up two-thirds of revenues, leaving only a third to fund priority areas.
- Minimum wage will be adjusted once every two years in line with productivity increases.

Monster Trucks
- Government will reduce expenditures on motor vehicle purchases - as a first step, the number of cars allocated to senior government officials will be restricted to two
- The Government will adopt prepaid telephone services .

Services

Governance, Law and Order
- Will release wealth declarations of public officers
- Will implement the recommendations of the Goldenberg commission once report is done and also of the land commissions.
- Also implement community policing to other urban centres
- Build 500 houses to improve the living conditions of police officers at a cost of 750 million
- Government will recruit more Magistrates and Kadhis to cope with the increased cases
- automate court registries to enhance information flows.

Banking sector
- state-owned banks will be restructured and privatised
- a SACCO Bill is under preparation
- Government will soon be tabling a Micro Finance Bill

Education
- The Government will continue to allocate the bulk of its resources, (28%) to education
- Will also redistribute teachers and redeploy resources
- Higher university fees: Universities to be made more self-reliant, to reduce their dependence on exchequer

Agriculture
- AFC, KFA and KCC will be supported, but not KMC, which is a pet project of one Minister
- Allow direct sale of Coffee outside the auction.
- Kshs.250 million allocated to facilitate revival of the cotton/textile sector to benefit from AGOA.
- Simply the exports of livestock by introducing a single permit system for cattle movement.

Infrastructure

Roads
- A 44% increase in resource allocation for public works
- Steps made to minimize bureaucratic delays
- Government will also enforce standards and quality specifications for all road maintenance and reconstruction works

Railway
- To raise investment funds necessary to improve rail services, a joint process to concession the Kenya and Uganda Railways is ongoing and is expected to be completed by December 2005.
- Government will partner with the private sector to explore the possibility of constructing railways to Sudan and Ethiopia

Air
Major modernization programme for JKIA is in progress.

Ports
Mombasa Port will be converted into a landlord port to facilitate further private sector participation in such areas as container terminal, bulk handling and conventional cargo.

ICT
- Government will facilitate development of adequate ICT capacity in the country and encourage improved ICT usage.
- Efforts will also be made to complete implementation of e-government during the year to improve service delivery and promote accountability.

Housing
Implementation of slum upgrading in partnership with UN-HABITAT and other development partners at Kibera, which will result in the construction of 600 housing units at a cost of 500 million shillings

Privatisation
- KShs.8 billion from privatization proceeds expected during the year
- Speedy enactment of the Privatisation Bill is critical to the success of reforms
- State-owned banks will be restructured and privatized.

KRA
- To reduce backlog the period to file an objection to income tax has been reduced from 60 to 30 days
- KRA will provide addresses of borrowers of student loans to universities to assist them recover loans faster
- To clear the delay in VAT refunds, KRA has been given enough resources to pay current claims
- Controversial roll out of electronic tax registers to continue
- Also continue the tax amnesty program (which netted Kshs 4.8 billion last year)