Kenya budget vs Nigeria

[hk]

• Tweet

Kenya with less than a fifth of Nigeria economy is budgeting for $25b annual budget equal to Nigeria's https://www.bloomberg.com/news/articles/2018-05-16/nigerian-lawmakers-approve-record-budget-ahead-of-elections . This is the clearest indicator of overtaxation on the few kenyans who actually pay taxes and the extent to which government is overspending, bulk of it going to wastage and corruption. Yes Nigeria should have a bigger budget than that but kenya is over the top on spending and over bloated civil service. Which is clear in amount of money being borrowed and heavy taxation on almost all sectors. For a country in kenya development stage we should max 20% of GDP which would translate to $16b. Which is what kra is going to collect. A reduced budget size would cut borrowing which would send interest rates tumbling leading to credit growth for private sector and individuals. Also reduced taxation across the board would rope in new taxapayers as the informal sector formalizes since compliance wouldn't be stringent. Its crazy that someone making ksh.240k annual or 20k per month pays 15% rate, 25k gross income is taxed at 20%. No wonder our labour costs are high .

[RV Pundit]

PLEASE Not Nigeria. That is world worst - and majority of that 25B is from oil and nothing on taxes. We should aim for South Africa. South Africa collects 25% of it's GDP as taxes - some countries of course collect nearly 50% of it's GDP (Scandavian welfare states). We collect anything 18-20% of GDP as taxes - and there is a lot of tax evasion + informal sector. South Africa has 120B dollars budget...and that is where we should aim at....not less taxes - just more tax payers - by increasingly formalizing the economy - for instance now that M-pesa is now functional all over the country - we need to start banning cash transactions in many places - forcing people to pay thro m-pesa will give KRA clue on who is paying and not paying taxes. The gov can start says from schools - declare that schools should not accept cash transaction at all - then go to hotels - ask them not to accept cash transactions - companies dealing with lots of VATS - should not accept cash transactions - people should either pay via M-PESA or banks.

The problem in summary is that some few tax payers pay thro the nose  - while many people operating informally do not pay at all.

The question of borrowing - well gok should borrow but borrow mostly externally at concessional rate while watching forex risk.

Kenya with less than a fifth of Nigeria economy is budgeting for $25b annual budget equal to Nigeria's https://www.bloomberg.com/news/articles/2018-05-16/nigerian-lawmakers-approve-record-budget-ahead-of-elections . This is the clearest indicator of overtaxation on the few kenyans who actually pay taxes and the extent to which government is overspending, bulk of it going to wastage and corruption. Yes Nigeria should have a bigger budget than that but kenya is over the top on spending and over bloated civil service. Which is clear in amount of money being borrowed and heavy taxation on almost all sectors. For a country in kenya development stage we should max 20% of GDP which would translate to $16b. Which is what kra is going to collect. A reduced budget size would cut borrowing which would send interest rates tumbling leading to credit growth for private sector and individuals. Also reduced taxation across the board would rope in new taxapayers as the informal sector formalizes since compliance wouldn't be stringent. Its crazy that someone making ksh.240k annual or 20k per month pays 15% rate, 25k gross income is taxed at 20%. No wonder our labour costs are high .

[hk]

PLEASE Not Nigeria. That is world worst - and majority of that 25B is from oil and nothing on taxes. We should aim for South Africa. South Africa collects 25% of it's GDP as taxes - some countries of course collect nearly 50% of it's GDP (Scandavian welfare states). We collect anything 18-20% of GDP as taxes - and there is a lot of tax evasion + informal sector. South Africa has 120B dollars budget...and that is where we should aim at....not less taxes - just more tax payers - by increasingly formalizing the economy - for instance now that M-pesa is now functional all over the country - we need to start banning cash transactions in many places - forcing people to pay thro m-pesa will give KRA clue on who is paying and not paying taxes. The gov can start says from schools - declare that schools should not accept cash transaction at all - then go to hotels - ask them not to accept cash transactions - companies dealing with lots of VATS - should not accept cash transactions - people should either pay via M-PESA or banks.

The problem in summary is that some few tax payers pay thro the nose  - while many people operating informally do not pay at all.

The question of borrowing - well gok should borrow but borrow mostly externally at concessional rate while watching forex risk.

Budget size should correlate with economy size and stage of development. There's no reason why kenya with a huge informal economy(i.e very few people actually pay income tax or corporate tax) should have such a huge budget being supported by heavy taxation and over borrowing especially local. To broaden taxbase the solution is to lower overall individual and corporate taxation. While kra can glean into mpesa transactions and see who should pay more, its been proven that compliance is enhanced by lower simple and predictable tax regime. A crackdown always push individuals and businesses underground. Its ridiculous that a landlord making less than 1m per month is taxed at the rate of 10% while a pauper making 15k per month is taxed at the same rate. In a country with supposedly progressive tax regime maybe we should go for one flat rate of 10% including vat. What's the return on debt? If we're borrowing to service debt or pay recurrent expenditure its negative. Furthermore its very clear by the number of scandals circulating around that there's a over allocation of funds.

[RV Pundit]

I think it's okay to heavily tax as long as we focus on providing basic services to everyone -  if we continue to work towards truly free universal education, health care, welfare for old and disable and poor, and such....then leave some for heavy infrastructure then that is where to go.Kenya cannot afford to have small tiny budget - we have to invest a lot of in public infrastructure - we have huge deficit in nearly everything - from roads, rails, name it. Yes there is probably scope for making it fairer..but I am advocating for a more efficient kra collecting more...not less. There are lots of people in informal sector who need to pay taxes...and they don't. We all know farmers who easily make millions per yr..but pay zero taxes.

Budget size should correlate with economy size and stage of development. There's no reason why kenya with a huge informal economy(i.e very few people actually pay income tax or corporate tax) should have such a huge budget being supported by heavy taxation and over borrowing especially local. To broaden taxbase the solution is to lower overall individual and corporate taxation. While kra can glean into mpesa transactions and see who should pay more, its been proven that compliance is enhanced by lower simple and predictable tax regime. A crackdown always push individuals and businesses underground. Its ridiculous that a landlord making less than 1m per month is taxed at the rate of 10% while a pauper making 15k per month is taxed at the same rate. In a country with supposedly progressive tax regime maybe we should go for one flat rate of 10% including vat. What's the return on debt? If we're borrowing to service debt or pay recurrent expenditure its negative. Furthermore its very clear by the number of scandals circulating around that there's a over allocation of funds.

[Kim Jong-Un's Pajama Pants]

Kenya with less than a fifth of Nigeria economy is budgeting for $25b annual budget equal to Nigeria's https://www.bloomberg.com/news/articles/2018-05-16/nigerian-lawmakers-approve-record-budget-ahead-of-elections . This is the clearest indicator of overtaxation on the few kenyans who actually pay taxes and the extent to which government is overspending, bulk of it going to wastage and corruption. Yes Nigeria should have a bigger budget than that but kenya is over the top on spending and over bloated civil service. Which is clear in amount of money being borrowed and heavy taxation on almost all sectors. For a country in kenya development stage we should max 20% of GDP which would translate to $16b. Which is what kra is going to collect. A reduced budget size would cut borrowing which would send interest rates tumbling leading to credit growth for private sector and individuals. Also reduced taxation across the board would rope in new taxapayers as the informal sector formalizes since compliance wouldn't be stringent. Its crazy that someone making ksh.240k annual or 20k per month pays 15% rate, 25k gross income is taxed at 20%. No wonder our labour costs are high .

I think it's important to remember that Nigeria has the Federal budget and the individual states also have their own separate revenue collection and budgets.  In Kenya, the budget is disbursed to the counties from the center.  Otherwise I agree that a small tax base should not shoulder the load that it currently does.

[Georgesoros]

Kenya with less than a fifth of Nigeria economy is budgeting for $25b annual budget equal to Nigeria's https://www.bloomberg.com/news/articles/2018-05-16/nigerian-lawmakers-approve-record-budget-ahead-of-elections . This is the clearest indicator of overtaxation on the few kenyans who actually pay taxes and the extent to which government is overspending, bulk of it going to wastage and corruption. Yes Nigeria should have a bigger budget than that but kenya is over the top on spending and over bloated civil service. Which is clear in amount of money being borrowed and heavy taxation on almost all sectors. For a country in kenya development stage we should max 20% of GDP which would translate to $16b. Which is what kra is going to collect. A reduced budget size would cut borrowing which would send interest rates tumbling leading to credit growth for private sector and individuals. Also reduced taxation across the board would rope in new taxapayers as the informal sector formalizes since compliance wouldn't be stringent. Its crazy that someone making ksh.240k annual or 20k per month pays 15% rate, 25k gross income is taxed at 20%. No wonder our labour costs are high .

Someone has to feed the monster govt.. Its too big.

[Nefertiti]

I agree with Pundit there is massive room for efficiency. Ban cash - in hotels, matatu, soko, etc. It's easy to ban cash over time. Any permit business like a bar or restaurant or chemist make it illegal to accept cash. Only mkokoteni guy and mama mboga or small kiosk needs time to go cashless.

Revenues would double. After that you can decide about revising brackets to flat rate or whatever. Not before.

I think KRA is progressively working on this and nailing evaders. I saw they hired a Chief Manager Big Data recently. They need AI & Analytics and modern tech to sniff out all sources and seal loopholes. With time Kenya should wind up cash completely by slowing the note printing. Even K-street should pay tax. Mop cash off the streets and people will pay.

[RV Pundit]

I think infrastructure is already there - KBL and it's distributor long banned cash - you have to top and buy beer off using m-pesa. I think CBK and KRA should issues guidelines regarding business where cash should not be accepted.There is an m-pesa shop every few meters...this will be a bold decision...but basically it can be done...gov can start by banning cash in any of their office...want to get any services...pay via M-PESA - and then it can ask it's parastals & agencies to similarly ban cash transactions. Then companies like Insurances will also be required to ban cash transactions. Big corporation will also be required to ban cash.

Banning cash...and allowing digital payments....will prevent money laundering, tax evasion and eventually all the mess business of cash...and it would benefit the consumers because that boost their digital payment profile....and they can leverage that to borrow.This will also reduce insecurity - and all gun- totting police men escorting or guarding cash all over.

Just like KRA forced people to have ETR - they should simply force everyone to have PAYBILL or TILL Number instead of ETR machine - or well some combination of ETR+Mobile-Payment can be devolved - you pay via some special paybill - and it's generate a ETR receipt for you. Right now people get cash and issue or not issues an ETR machine.

I agree with Pundit there is massive room for efficiency. Ban cash - in hotels, matatu, soko, etc. It's easy to ban cash over time. Any permit business like a bar or restaurant or chemist make it illegal to accept cash. Only mkokoteni guy and mama mboga or small kiosk needs time to go cashless.

Revenues would double. After that you can decide about revising brackets to flat rate or whatever. Not before.

I think KRA is progressively working on this and nailing evaders. I saw they hired a Chief Manager Big Data recently. They need AI and modern tech to sniff out all sources and seal loopholes. With time Kenya should wind up cash completely by slowing the note printing. Even K-street should pay tax. Mop cash off the streets and people will pay.

[hk]

To broaden taxbase the rates have to be lowered to rope in more people and companies into the system. There's a demonstrable example of that, kra reduced landlord revenue rate to 10% gross from 30% income and now its collecting alot more and most landlords are compliant. The key is giving individuals and companies incentives to be compliant. over-taxation leads to less taxes collection as laffer curve clearly demonstrates. There's a clear ideal size of government vs GDP and development stage.

[Nefertiti]

Yup. It's easy to enforce. You go to deposit cash in the bank you have to explain where it came from. Even transit buses should use digital. Basically the option to STOP printing notes is a big lever for GoK... by rationing notes you will make cash business to suffer and noone will convince them to go digital. Even bribes will have to be recorded as business and taxed. Probably have a transaction fee cap to be very cheap.

I think infrastructure is already there - KBL and it's distributor long banned cash - you have to top and buy beer off using m-pesa. I think CBK and KRA should issues guidelines regarding business where cash should not be accepted.There is an m-pesa shop every few meters...this will be a bold decision...but basically it can be done...gov can start by banning cash in any of their office...want to get any services...pay via M-PESA - and then it can ask it's parastals & agencies to similarly ban cash transactions. Then companies like Insurances will also be required to ban cash transactions. Big corporation will also be required to ban cash.

Banning cash...and allowing digital payments....will prevent money laundering, tax evasion and eventually all the mess business of cash...and it would benefit the consumers because that boost their digital payment profile....and they can leverage that to borrow.This will also reduce insecurity - and all gun- totting police men escorting or guarding cash all over.

Just like KRA forced people to have ETR - they should simply force everyone to have PAYBILL or TILL Number instead of ETR machine - or well some combination of ETR+Mobile-Payment can be devolved - you pay via some special paybill - and it's generate a ETR receipt for you. Right now people get cash and issue or not issues an ETR machine.

I agree with Pundit there is massive room for efficiency. Ban cash - in hotels, matatu, soko, etc. It's easy to ban cash over time. Any permit business like a bar or restaurant or chemist make it illegal to accept cash. Only mkokoteni guy and mama mboga or small kiosk needs time to go cashless.

Revenues would double. After that you can decide about revising brackets to flat rate or whatever. Not before.

I think KRA is progressively working on this and nailing evaders. I saw they hired a Chief Manager Big Data recently. They need AI and modern tech to sniff out all sources and seal loopholes. With time Kenya should wind up cash completely by slowing the note printing. Even K-street should pay tax. Mop cash off the streets and people will pay.

[hk]

I think infrastructure is already there - KBL and it's distributor long banned cash - you have to top and buy beer off using m-pesa. I think CBK and KRA should issues guidelines regarding business where cash should not be accepted.There is an m-pesa shop every few meters...this will be a bold decision...but basically it can be done...gov can start by banning cash in any of their office...want to get any services...pay via M-PESA - and then it can ask it's parastals & agencies to similarly ban cash transactions. Then companies like Insurances will also be required to ban cash transactions. Big corporation will also be required to ban cash.

Banning cash...and allowing digital payments....will prevent money laundering, tax evasion and eventually all the mess business of cash...and it would benefit the consumers because that boost their digital payment profile....and they can leverage that to borrow.This will also reduce insecurity - and all gun- totting police men escorting or guarding cash all over.

Just like KRA forced people to have ETR - they should simply force everyone to have PAYBILL or TILL Number instead of ETR machine - or well some combination of ETR+Mobile-Payment can be devolved - you pay via some special paybill - and it's generate a ETR receipt for you. Right now people get cash and issue or not issues an ETR machine.

This is already happening for the most part. The integration of Lipa na Mpesa with banks is accelerating it. Most businesses nowadays accept some form of mobile payment option. So tracking this is pretty simple. Even without forcing companies to have paybill or till number the market is forcing them to have one.

[RV Pundit]

The tax cheating bahindis & other such folks don't- nope - I see them in my bank queuing with lots of cash every day to deposit. So the clean guys who pay taxes are embracing it. But the crooks who don't want to remit VAT will never go m-pesa until they are forced. With ETR they can bribe KRA supervisors.

This is already happening for the most part. The integration of Lipa na Mpesa with banks is accelerating it. Most businesses nowadays accept some form of mobile payment option. So tracking this is pretty simple. Even without forcing companies to have paybill or till number the market is forcing them to have one.

[hk]

The tax cheating bahindis & other such folks don't- nope - I see them in my bank queuing with lots of cash every day to deposit. So the clean guys who pay taxes are embracing it. But the crooks who don't want to remit VAT will never go m-pesa until they are forced. With ETR they can bribe KRA supervisors.

Obviously there are cheats but even those cheats for the most part accept mobile payments though mobile payments might represent a small percentage of their overall sales. One of the reason why there's so much cheats on VAT its cause KRA takes forever to refund. This is one of the biggest complains among manufacturers.