Highlights of Kenya’s 2015/16 Budget

The Kenyan government has presented Kshs 2 trillion budget for 2015/16 financial year making a huge step towards improving the business environment in the coming years.
The presented budget is meant to address the following key issues:

  1. Better infrastructure for private sector growth
  2. Addressing Insecurity Concerns for Business Expansion
  3. Power generation
  4. Agricultural and industrial transformation
  5. Investment in education and health
  6. Strengthening devolution and regional development
  7. Investing in youth, women and persons with disability
  8. Tourism recovery

Development of Infrastructure is a priority area and has been allocated Ksh 58.5 billion by the Government. This allocation will be used in implementing the ongoing road constructions, KSh 26.7 billion has been set aside for road maintenance;  KSh 42.0 billion for foreign-financed roads, and KSh 5.0 billion for the Road Annuity Programme. An efficient, faster and affordable transport will go a long way in reducing the cost of doing business hence transforming Kenya’s economy towards prosperity.

The security sector has been prioritized by the government following the incidences of insecurity and terrorism witnessed in the country. A total of Ksh 112.5 billion has been set aside for defense and the National Intelligence Service. Further, the State Department of Interior has been allocated Ksh 102.5 billion.

KSh 13.2 billion has been allocated for further Geothermal Power Development. This will ensure that the Government’s commitment to generating 5,000 MW of power by 2017 is also on course. To date, over 280 MW has been delivered under the geothermal program leading to reduction of the cost of power by 30 percent. This will continue reducing the cost of doing business in the country, spur growth of enterprise development, encourage industrialization and help accelerate the achievement of Kenya’s growth and development objective as stated in the Kenya Vision 2030.

The agriculture sector has been allocated Ksh 43.3 billion that will be used in transforming the sector from subsistence to productive commercial farming.

Ksh 2.6 billion has been set aside for the Ethics and Anti-Corruption Commission and Ksh 2.2 billion to the Department of Public Prosecutions. These will aid in structural reforms vital in facilitating business operations.

The 47 County Governments have been allocated Ksh 259.7 billion as Sharable revenues to support the implementation of the devolved system of Government.

The tourism sector has been allocated KSh 5.2 billion to aid in its recovery while Ksh 3 billion has been set aside for industrial development.

Ksh 800 million has been set aside for the development of Africa’s silicon savanna-The Konza Techno City.  This project is expected to promote innovation and generate different types of businesses in Kenya.

KSh 0.85 billion, Ksh 0.5 billion, and Ksh 0.3 billion have been set aside for Uwezo Fund, Women Enterprise Fund, and Youth Enterprise Fund respectively.

Ease of Doing business

In order to reduce the cost of doing business and encourage the private sector, innovation, entrepreneurship and business expansion has been identified as key prerequisite to achieving strong and sustained economic growth and poverty reduction in the country. To this end, the Government has implemented a Business Regulatory Reform Strategy to reduce the cost of doing business that encompasses:

  • Reducing procedures, time and cost of starting a business, getting electricity and registering property by at least 80 percent in 2016
  • Reducing procedures, time and cost of getting construction permits and paying taxes by 50 percent and 60 percent, respectively in 2016; and
  • Making it easy to access credit and to trade across borders.

Facilitating Private Sector Growth to Accelerate Industrialization and the Creation of Jobs

In the 2015/16 budget the government has introduced tax measures that aims at accelerating growth, creating employment and ease the cost of living for Kenyans. Some of these measures include;

  • The 5 percent capital gain tax on the sale of shares shall be replaced with a 0.3 percent withholding tax on the transaction values of the shares.
  • The government will exempt from withholding tax all payments made by foreign film producers to actors and crew members. In addition, VAT in respect of goods and services purchased for use in the film making will be exempt.
  • There will be taxation of residential property at 12% of the gross rental income, where gross rental income is below Ksh. 10 million per year while loss carry forward has been extended from 5 to 10 years.
  • As part of Kenya’s industrialization strategy and Vision 2030, the Government has prioritized the development of industrial parks targeting the small and medium size enterprises in five selected locations of; Nairobi, Nakuru, Kisumu, Mombasa and Eldoret to provide infrastructure facilities to our investors. There will be an exempt from VAT taxable goods and services for use in the construction of infrastructure works in industrial and recreational parks of 100 acres or more. This measure is expected to make it attractive for both foreign and local investors to set up these parks in Kenya and create jobs for our people.
  • Measures have also been taken to make it cheaper and competitive for private investors to conduct business in East Africa. The Import Declaration Fee (IDF) has been lowered from the rate of 2.25 percent to 2.0 percent as a demonstration of the Government’s commitment towards harmonization of IDF in the EAC region.

Promoting Equity and Fairness

In order to promote equity and fairness the budget provides for zero-rating of passenger and personal effects including one motor vehicle to a returning resident of Kenya who is changing residence. Given that Kenya operates right hand motor vehicles, returning Kenyan residents with left hand motor vehicles cannot enjoy this and hence it is perceived to be unfair, inequitable and discriminatory.

Accordingly, the proposal will amend the VAT law to allow such returning residents who have owned the left hand drive motor vehicle for at least twelve months to sell the motor vehicle and import VAT and duty free a right hand motor vehicle of equivalent value subject to specified conditions.

 

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