The Citizen (Dar es Salaam)
9 June 2011
Nairobi — The attacks of the rising cost of living, food security, fuel and taxation system improvement have been the hottest issues in the budgets read on Wednesday in Nairobi, Kampala and Kigali.
In the Kenyan capital, Nairobi, the Finance Minister Uhuru Kenyatta spelt out an ambitious budget aimed at the basic level — putting food on the table for all Kenyans and offering the most specific assault on the rising cost of living.
The minister allocated a cumulative Ksh100 billion to promote agriculture to enhance food security, which will stem the spiralling food prices caused by production shortfalls.
Also, duty on maize, wheat and rice was cut to increase local supply and reduce prices.High food prices have been a major concern and the government is acting to avert food riots that have been witnessed in other countries like Uganda, especially going into an election year where emotions can easily be whipped up by politicians looking for votes.
“We all know the tough times we are facing following the new challenges stemming from rising international commodity prices, including fuel and drought-related concerns on food security,” Mr Kenyatta said in the Budget ministerial statement read in Parliament on Wednesday.
Also, he gave a duty waiver for six months on maize imports instead of 50 per cent applied for the region.
The minister removed excise duty on kerosene, barely two months after cutting it by 30 per cent to stem the impact of rising fuel prices on households.Measures to boost food supply include the biggest investment ever in irrigation to rehabilitate huge chunks of semi-arid land across the country into arable land.
The total revenue target for fiscal year 2011/12 is Ksh787.6 billion – or 24.7 per cent of GDP, based on projected economic growth, the on-going reforms in tax and customs administration, and new tax measures, including fee collected by public universities which was previously not captured in the budget.
Among unnecessary expenditure: too many MPs, too many national commissions, too a big overnment.
In Kampala, Daily Monitor Business Editor Dennis Kawuma analyses the budget read by finance minister Maria Kiwanuka saying her positive projections will not come easy.
Following numerous public demands for a reduction in taxes especially on petrol and diesel, the finance minister had a difficult balancing act to perform in light of the fact that government was at the same time being urged to come up with new measures to expand the base.
Delivering her inaugural speech yesterday, the new Finance chief projected a growth rate of 6.3 per cent in comparison to the 5.5 per cent growth that was achieved this financial year. According to Ms Kiwanuka, the Ugandan government steered clear of tax increases but there was no reprieve for Ugandans whose economy runs on fuel as taxes on petrol and diesel remain unchanged.
With a 50 per cent excise duty cut on sugar and the repealing of excise duty on kerosene, the rural folks might think they have something to smile about but these cuts are marginal and they could be easily eroded by the high inflation and fuel prices, among other factors.
With a total allocation of Ush437 billion, comprising 4.5 per cent of the total budget, the allocation is not significantly different from last year’s Shs336 billion, which comprised 5 per cent of the total budget. Government decided to go big on investment in energy and infrastructure. Being key drivers to growth, this is a stride in the right direction.
Considerable allocations were also made towards education although challenges of quality and effectiveness are yet to be addressed.
In a rather veiled attempt by government to rein in the country’s generally vibrant media, government moved to cut 50 per cent on advertising budgets for all ministries and agencies. Similarly, government introduced a 30 per cent cut on the budget for allowances, workshops and seminars, travel inland and abroad, fuel and vehicle maintenance, among others.
Perhaps one of the biggest challenges government faced while drafting this year’s budget was the issue of dealing with the major causes of the social and political unrest that was witnessed after this year’s general elections. In an attempt to address this problem, the minister allocated Ush44.5 billion towards creating jobs, especially for the youth.
This will be broken down into Ush25 billion, which will go to a Youth Entrepreneurship Venture Capital Fund, Ush3.5 billion will go to youth entrepreneurship training and Ush25 billion to boost youth and other small scale manufacturers.
In Kigali, Rwanda’s fiscal expenditure is projected to rise by 7.6 percent in the next fiscal year, finance minister, John Rwangobwa, said as he unveiled the 2011/12 budget, which also entails slashing fuel levies to contain inflationary pressures and cushion the economy against external shocks amidst volatile global oil and food markets.
While presenting the budget to Parliament, Rwangombwa highlighted that Rwanda’s ability to cope with the spill-over effects of the global economic and financial situation, which looks uncertain with several macroeconomic risks will remain the key objectives of the country’s economic policy in the coming fiscal year.
“This year (2011) is already proving to be a difficult year for our economy,” he said in his second budget reading as the minister of Finance and Economic Planning.Rwangombwa envisages that the turbulent global economic situation, which is characterised by world fuel and food price increases, is likely to lead to higher inflation, threatening the country’s food security and macroeconomic stability.
Rwanda’s inflation reached 5 percent at the end of April 2011 compared to 0.2 percent at end December 2010.
In a highly anticipated move the Finance minister announced that the government will slash fuel taxes by Rwf 100 per litre for both petrol and gasoil to contain inflationary pressures.
While the treasury is expected to lose Rwf 14.1 billion as result of the fuel tax reduction, the budget proposed tighter revenue measures including introducing electronic transaction devices to increase efficiency of Value Added Tax (VAT) collections.
The proposal targets retailers who do not issue receipts to their customers for purchases made and would boost VAT collections by Rwf4.2 billion in the fiscal year 2011/2012, thus bridging the shortfall. The proposed measures also include the introduction of a gaming special tax of 13 per cent.
and a withholding tax of 15 percent.
“On the basis of activities performed in 2010, we expect collections in 2011/2012 of Rwf 186.3 million and Rwf 859.9 million in gaming special tax and withholding tax respectively,” Rwangombwa said.
The plan is however subject to the gaming law due to be passed by Parliament.
These yields from the increase in VAT efficiency and the introduction of the gaming taxes will reduce the fuel tax adjustment loss from Rwf14.2 billion to about Rwf9 billion, the Minister said.
Other proposals include implementation of the EAC Common External Tariffs (CET), where rice will attract CET of 30 percent, tractors 0 percent, wheat grain 0 percent, wheat flour 35 percent, construction materials for investors with projects of at least US$1.8 million 5 percent, and aluminium conductors and cables 10 percent.
Trimming the budget deficit
To consolidate macroeconomic stability, the treasury plans to curtail government deficit and debt accumulation as well as boosting domestic revenue mobilisation to slash the fiscal aid dependency. The overall cash deficit is projected to decline sharply from Rwf 155.1 billion to about Rwf 96.8 billion.
Total revenue and grants are projected to rise from Rwf 844.2 billion in the revised budget for 2010/2011 to Rwf 974 billion in 2011/2012, an increase of 15.5 percent while expenditure and net lending is also programmed to rise from Rwf 988.1 billion to Rwf 1,062.8 billion showing, an increase 7.6 percent.
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