Budget Statement 2017 Highlights

Budget Statement 2017 Highlights

Mbiki Kamanjiri Manager - Tax Economic Review

Global Outlook 1.5% 1.5% 1.7% 3.0% 3.1% 2.7% 6.0% 1.8% 2.9% 4.8% 5.9%

African Outlook 4.3% 4.0% 2016 2017 6.6% 6.3% -1.7% 1.4% 5.9% 6.0% 0.4% 1.5% 7.0% 7.1% 0.4% 1.2% 4.3% 4.8%

Kenyan Outlook GDP Growth 5.3% 5.6% 5.9% 6.0% 2014 2015 2016 2017

Major Contributors to GDP Manufacturing Agriculture Tourism

Banking / Finance 20 15 10 5 0 Average lending vs savings rates Average lending rates 2015 Average savings rates 2015 Average lending rates 2016 Average savings rates 2016 Thousands of job cuts within the banking sector Lending Cap: 4% above CBR M&A Activity: SBM holdings Bank M I&M Bank Fidelity Commercial Bank Oriental Commercial Bank Giro Bank

Debt to GDP 100% 74% Acceptable limit 50% Current Debt to GDP Ratio Local Borrowing: KES 268 Billion 3.1% of GDP

Inflation 9% Inflation rate 9 8 7 6 5 4 3 2 1 0 7.78 6.84 6.45 5.27 5 5.8 6.39 6.26 6.34 6.47 6.68 6.35 Inflation rate 2016 2017

Budgetary Allocations Sector Allocation in Billions Security 56.4 Government Instituitons 95.1 Devolution 329.3 National Cohesion and Integration Commission 30.9 Roads 184.2 SGR 75.6 Education 169.6 Healthcare 37.4 Water Resource Mangement 37.2 Social Security- Vulnreable& Elderly 32.2

Budget winners Illumining kerosene for paint manufacturing Refund excise duty Inputs for pesticides VAT exempt Medical equipment & apparatus for specialized hospitals VAT exempt

Budget winners Bread VAT Zero Rated Maize Flour VAT Zero rated Maize import Duty free for the next 4 months Locally manufactured Sanitary towels Exemption of Excise Duty

Budget winners Blue Economy Packaging material and inputs for marine fisheries and processing VAT exempt Capital expenditure 150% investment deduction Fishery vessels 50% reduction of port charges

Budget winners New vehicle assemblers reduced Corporation tax from 30% to 15% for the first five years Locally purchased and assembled tour vehicles VAT exempt

Budget winners Special Economic Zones Exempt Withholding Tax on dividends to non residents Reduced Withholding tax on interest from 15% to 5% Reduced management fees and royalties from 20% to 5% Building costs and machinery 100% allowance Exemption from Export duty and Import Declaration Fees Transfer Pricing introduced for transactions between resident entities of the SEZ / EPZ and related entities outside SEZ / EPZ

Budget winners The Wananchi! Rate TAXABLE INCOME 2017 TAXABLE INCOME 2018 % 10 - - 11,180.00 - - 12,298.00 15 11,180.00-21,714.00 12,298.00-23,885.00 20 21,714.00-32,248.00 23,885.00-35,473.00 25 32,248.00-42,781.00 35,473.00-47,059.10 30 42,781.00 47,059.10 Tax relief increased from Ksh. 1,280 to Ksh. 1,408 per month

Budget losers Gaming tax from 12% to 50% Betting tax 7.5% to 50% Lottery tax from 5% to 50% Prize competitions tax from 15% to 50%

Budget losers Spirits Excise Duty increased from Ksh. 175 to Ksh. 200 per litre LPG Gas and cylinders VAT Exempt from Zero Rated status

Budget losers Withholding VAT Administrators You have to pay the tax withheld 14 days after New penalty introduced for lack of withholding Commissioner may exempt person who demonstrates unable to get credit for 24 consecutive months

What is a Tax amnesty? No questions asked Introduce

What is a Tax amnesty? The amnesty is like church. It is not just open to sinners looking for forgiveness, but anyone who wants to go in for prayers

Introduction The finance Act 2016 introduced a provision in the Tax Procedures Act which will grant tax amnesty to tax payers who earn taxable income from foreign sources. The Amnesty gives the right to tax payers to declare their foreign income in respect of any year ending on or before 31 December 2016. The Amnesty is a timely development in light of Kenya having agreed to participate in the Common Reporting Standards (CRS) regime. CRS is a global initiative developed by the Organisation for Economic Cooperation and Development to enhance tax transparency and compliance

Where has it worked? Russia (2007) Collected $ 130 million Italy (2001) 80 billion declared Indonesia (2016) - $ 381 billion declared. $ 14.4 billion to be repatriated

What does Kenya intend to do? Declare assets Repatriate Assets No tax charged No further questions asked Encourage compliance and tax transparency. Allow commissioner to collect information from unidentified tax payers Create liquidity and generate economic growth

Guidelines published on 8 th March 2017 Full disclosure of assets to be done by 31 st December 2017 Disclosure using a prescribed format provided by KRA No further information to be provided Physical repatriation of assets is a must?? Returns to be made on itax A certificate shall be generated

Amnesty exceptions Income earned in Kenya Income earned outside Kenya but already declared Individuals under tax audit or investigation by the commissioner

Updates from budget speech Extension to file returns and accounts for the year 2016 by 30 th June 2018 Funds declared under amnesty have to be repatriated

What we feel should be done Give an option of not repatriating all income or assets Simplify the process of declaration Improve the awareness of the amnesty and its benefits Do not restrict repatriation out of Kenya in the future

Conclusion

Election year perception 2002 Economic growth slowed in the election year down but picked up in 2003 2007 Economic growth of 7% in the election year but slowed down in 2008 to 1.5% due to the post election violence 2012 Economic growth of 4.7% in election year and 5.3% in 2014 2017???

Election period so far FDI - USD 2.3 billion in 2016 from USD 0.51 billion in 2013

Other things to look forward to

5 th Floor, Avocado Towers, Muthithi Road, Westlands, Nairobi Kenya T +254 20 3752830 3747681 2402975 F +254 20 3749839 www.grantthornton.co.ke Mbiki Kamanjiri Manager Tax Consulting Services Cell +254 721 449 468 E ; mbiki.kamanjiri@ke.gt.com