Kenya Budget 2018: Govt prioritizes agricultural and manufacturing agenda but consumers may have to pay more

KENYA – With a long term goal of ‘creating jobs, transforming lives and sharing prosperity’, the 2018 budget centred at the government’s Big 4 Agenda of growing the contribution of manufacturing GDP from 9% to 15%, but consumers may be required to pay more due to proposed amendments to the VAT Act 2013, considered to be lowest charged at 16% compared to some other countries.

The Cabinet Secretary (CS) National Treasury, Henry Rotich proposed the several regulatory and tax incentives to support the Big 4 agenda which also seeks to provide affordable housing, universal healthcare coverage and ensuring food and nutrition security for all by 2022.

Tax incentives include lower tax rates for Special Economic Zones and favourable investment allowances to contribute to manufacturing while creating over 800,000 new jobs.

It’s an energy relief for manufacturers as the CS proposed an additional deduction of 30% on electricity costs incurred by manufacturers although subject to certain conditions to be set by the Ministry of Energy.

Prioritizing the agricultural sector

Key changes in the agricultural sector builds on the agenda of enhancing food security and nutrition.

These include VAT exemption of equipment to be used in the construction of grain storage facilities as well as raw materials for animal feeds.

These are strategies in ensuring proper food storage, reduce post-harvest losses, also attract investments in the animal feeds sector through job creation and agricultural growth.

Boosting food security, nutrition and duty remission on vital commodities

To ensure food security and nutrition, the government will partner with the private sector to promote large scale farming in a bid to reduce the cost of food.

Incentives to attract investments in post-harvest handling and storage facilities will be provided to reduce wastage.

There is a proposal to introduce a remission of duty on wheat grain with the applicable rate being 10% instead of 35% for one year, meant to ease food prices and enhance food security.

The report says EAC Member States have jointly made a proposal to retract from an earlier Gazette provision, passed in June 2016, to reduce duty remission levels on industrial sugar.

Also, a new proposal seeks to apply the higher of 35% or USD 200/MT in import duty on rice for a period of one year, extending the current stay of application of import duty rates per the CET, in order to deal with the rice production deficit.

Manufacturers of pesticides, fungicides, insecticides and acaricides will import the inputs at a duty rate of 0% following the proposed remission of import duty on the imports.

According to the CS, the government is committed to upscale the provision of insurance and affordable credit facilities to small scale farmers.

Introduction of excise duty on products high in sugar content such as confectioneries and chocolates, which are also related to lifestyle diseases may be realized in the near future through the amendment of the Finance Bill, all to ensure a healthier population.

Given the developments, excise duty appears to be evolving from taxing luxurious and harmful products to earning revenue for the government with the scope of goods and services subject to excise duty expanding every day.

Plans to work with other East Africa states are underway to review the Common External Tariff rates to protect local industries as a way of protecting local industries.

A signal for tough time ahead

The ambitious, more than US$30bn 2018 budget by Kenya, the biggest since independence is expected to hit-hard ordinary consumers as well as the blue economy including nets and fish processors.

Consumers are bracing for more expensive basic commodities such as bread and maize flour after a reversal of the zero rating made last year.

The Ministry had zero rated wheat flour last year but that is set to change, at least after the proposed amendments come into effect.

According to Business Daily, suppliers of bottled water will not be able to claim any VAT incurred hence the cost will be borne by the final consumers through a higher cost.

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