East African governments this week presented their most expensive budgets yet, seeking to reinvigorate their economies, finance expanded government operations and repay ballooning debts.
Economists are warning the region’s citizens to brace for harder times as the fiscal measures proposed in the 2023/24 budgets are wont to further raise the cost of living, cause investor flight in some countries, and result in job losses.
Kenya, the region’s biggest economy, has proposed a $26.3 billion spending plan, while Tanzania has a $19.2 billion budget. The Democratic Repulic of Congo is planning to spend $16 billion, Uganda $13.9 billion, Rwanda $4.7 billion, Burundi $1.5 billion and South Sudan $1.4 billion.
The region’s taxpayers are facing more levies, with Kenya introducing measures to raid payslips of the working class to finance election promises President William Ruto made to his “hustlers,” to shore up forex reserves and spur growth.
In Uganda, the Museveni administration is seeking to borrow to finance some 18 big-ticket infrastructure projects while promising more on household incomes through the Ush1 trillion ($271.9 million) Parish Development Model, a programme the government launched in February 2022 to bring 39 percent of poor Ugandan households into the money economy.
Tanzania’s Samia Suluhu ’s regime has sought more cash to finance an economy shaking out of slumber, with Finance Minister Mwigulu Ncheba proposing to boost domestic revenue collection through a raft of measures while reducing domestic and external borrowing.
In Burundi, Finance Minister Audace Niyonzima presented a $1.4 billion budget against a struggling economy where spending will rise 65 percent and the budget deficit is expected to rise to BF728.9 billion ($258.3 million), from BF197.4 billion ($69.9 million) in the ending financial year.
South Sudan and DRC are yet to read their budgets but the estimates have already been made public.
In Kenya, Prof Njuguna Ndung’u, the Treasury Cabinet Secretary, on Thursday presented a Ksh3.68 trillion ($26.3 billion) budget whose implementation will involve raiding the wallets of salaried workers, increasing fuel costs and heavy borrowing.
Salaried employees will part with more to finance the National Health Insurance Fund (2.7 percent) and pay a 1.5 percent of gross salary to support the affordable housing programme in addition to a 35 percent income tax.
Prof Ndung’u proposed an amendment to the Income Tax Act to adjust Pay as Your Earn by introducing two additional tax bands: 32.5 percent for individuals earning monthly incomes between Ksh500,000-Ksh800,000 (($3,570- $5,712), and 35 percent for those earning more than Ksh800,000.
He said the two new bands will affect 26,676 employees, who constitute 0.8 percent of the employed workers.
“It remains to be seen how much additional tax revenue will be generated from the two new tax bands and whether the government will achieve its objective in making the tax system more progressive,” said Dr Benson Okundi, a partner at audit firm PwC.
Prof Ndung’u proposed to allocate Ksh35.3 billion ($252.3 million) to Dr Ruto’s pet project, the housing programme, to reduce mushrooming of slums and create more jobs for the youth.
He proposed to amend the Employment Act, 2007 to introduce a housing levy payable by employers and employees at 1.5 percent of an employee’s gross monthly.
Yet the minister hinted at a possible retrenchment of lower-cadre staff in state corporations. He said the State Corporations Advisory Committee will start “rationalising staff establishment to keep them lean.”
Kenya proposes an increase in VAT of petroleum products from eight percent to 16 percent; zero rating of liquified petroleum gas from VAT and increase of turnover tax from one percent to three percent, with the upper threshold lowered to 25 percent.
The doubling of VAT on fuel will see the cost-of-living skyrocket as fuel has a ripple effect on transport, infrastructure, energy, agriculture and food and housing.
PwC, in its budget review, observed that an increase on VAT on fuel will impact inflation.
“The inflation rate in Kenya rose to eight percent in May 2023, from a ten-month low of 7.9 percent in the prior month. Increase in VAT of petroleum products is likely to have far-reaching consequences,” PwC said.
Prof Ndung’u indicated that the National Assembly will formulate a county revenue bill to provide governance around revenue generation for counties.
The government is seeking to raise Ksh2.57 trillion ($18.4 billion) – the highest amount in its history – from ordinary revenue, amid opposition by lobbies and the opposition in parliament.
Foreign businesses, through lobbies, have expressed their concerns. In a letter to the National Assembly, Maxwell Okello, CEO of the American Chamber of Commerce, asked legislators to remove several proposals deemed detrimental to business.
Foreign businesses have also taken issue with the digital content monetisation tax – which has now been reduced to five percent from the proposed 15 percent – saying it will put undue burden on digital service firms, which are mostly foreign multinationals.
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