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Our Review highlights the main aspects of the Budget, read by the Finance Minister on 8 June 2011. The information
contained in this review has been compiled from the Finance Bill 2011 and while all reasonable attempts have been
made to ensure that the information contained herein is accurate, VKM accepts no responsibility for any errors or
omissions it contains whether caused by negligence or otherwise. The review contains general information only and is
neither intended to be a comprehensive publication nor provide specific advice. This review should not be relied on
solely, and we advise you to seek appropriate professional advice before making any decision.
The information contained in this Review is meant for the exclusive use by the clients of VKM Kenya, VKM Uganda,
VKM Tanzania and its associates and no part of it may be reproduced and circulated without prior written consent.
Audit and Assurance
Accountancy
Tax
Corporate Finance
Corporate Restructuring
Executive Recruitment
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Internal Audit
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Project Feasibility
Transaction Advisory
Training
Valuation of Intellectual Property Rights
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EAST AFRICA BUDGET REVIEW
CONTENTS Page
KENYA BUDGET REVIEW 1-13
INTRODUCTION 1-2
ECONOMIC REVIEW 3-6
INCOME TAX 7-9
CUSTOMS & EXCISE 10-11
VALUE ADDED TAX 11
MISCELLANEOUS 12-13
UGANDA BUDGET REVIEW 14-15
TANZANIA BUDGET REVIEW 16-17
RWANDA BUDGET REVIEW 18-19
BURUNDI BUDGET REVIEW 20
EAC BUDGET REVIEW 21
EAC BUDGET THEME Implementation of the Common Market and laying the foundation for a Monetary Union
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BUDGET 2011/2012 OVERVIEW:
The Kenyan budget for the 2011/2012 fiscal year read by Deputy Prime Minister and Minister for Finance, Hon. UhuruMuigai Kenyatta on Wednesday, 8
th, June 2011 is gigantic, courageous and bold as it spells out a spending plan that has
for the first time surpassed a trillion Kenyan Shillings mark, thereby setting a precedent since independence. It is the thirdNational Budget presented by the Minister sequentially to the August house and the people of the Republic of Kenya. Thebudget of KES 1.155 Trillion denotes an increase of 16% compared to the preceding fiscal year 2010/2011 which stood atKES 997 Billion. The KES 1.155 Trillion budget is divided into KES 755 Billion for Recurrent Expenditure and KES 400Billion for Development Expenditure.
The Trillion Kenyan Shillings mark surpassed in the Kenyan Budget history is a conspicuous testament that Kenya isrearing itself to fulfil its promises as contained in its development blue print dubbed Vision 2030, which envisionstransforming Kenya into middle - income country providing a high quality life to all its citizens! The theme of this yearsBudget is Building Resilience and Sustainable Inclusive Growth for a Prosperous Kenya. This is in tandem withthe development blue print that aspires to put the economy on a high and permanent growth path as embodied in the
Vision 2030.
The budget inspires hope in the face of the challenges stemming from rising international commodity prices including fuel,and drought related concerns on food security. In light of these challenges, the Budget promises the following:
i. To continue to nurture growth momentum in the face of emerging domestic and global challenges,
ii. To continue to accelerate the social programs under education and health provision for all.
iii. Step up the Investments in Infrastructure specifically in the road, energy and rail.
iv. Implementation of the New Constitution.
v. Maintain macroeconomic stability.
WHAT IS IN STORE FOR KENYANS- KEY HIGHLIGHTS!
Continue to provide free Primary and Secondary education.
Spending on safety nets to cushion the vulnerable from the current challenges posed by high food and fuel prices.
To support youth by providing resources through existing Public Works Programmes.
To promote agricultural development.
Continued development of Rural and Marginalized Areas.
To promote infrastructural development of roads, energy, airport, rail and supporting skill development that is
envisaged to spur business growth and improve the business environment.
Recruitment of the police officers to beef up security.
To prepare for 2012 General Elections.
DRIVERS OF ECONOMIC GROWTH:
Real GDP expected in 2011 is 5.3% whereas for 2012 it is expected to be 6.1%. The overall average growth rate for thefiscal year 2011/2012 is expected to be 5.7%. The Key Drivers expected are:
Private sector growth as this is the engine to meet resource requirement.
Increased Foreign Direct Investment (FDI)
Improved tourism sector
Strong export growth with better prices and favorable exchange rate despite high food and oil prices and delayed
planting season.
Improved construction sector.
INTRODUCTION
BUILDING RESILIENCE AND SUSTAINABLE INCLUSIVE GROWTH FOR A PROSPEROUS KENYA
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CHALLENGES FACING THE COUNTRY:
The country faces the following challenges as it ushers in a new budget for the fiscal year 2011/2012:
Projected budget deficit of 7.5% of the GDP for 2011/2012 and is expected to decline to 5% by 2013/2014.
Public Debt is expected to rise from the present level of KES 1.3 Trillion at the end of June 2011 to KES 1.6
Trillion by 2011/2012.
Projected growth to create jobs slightly over half a million a year.
Inflation has been rising for the last seven months to stand at 12.95% in May 2011 fuelled by high international oil
prices in the face of weak shilling and food shortages.
There is fear of a third of more than the countrys 40 Million plus population will require relief food before end of
the year.
CDF and LATF come to an end by 2012; it is critical that constituencies complete ongoing projects in readiness for
hand over to County Government. The Finance Minister finds himself between a rock and a hard place with huge expenditure requirement at a time
when the Kenyans are reeling from high cost of living.
The Constitutional Requirement under Article 221, that requires that the Budget estimates be presented to the
public two months before the end of the financial year posed a big challenge in the Budget presentation in
parliament.
KRA might fall short of the collection targets due to price war in mobile segment, cigarette and alcohol. In
addition, escalating food and fuel prices and poor performance of the Nairobi Stock exchange may hinder
collection targets.
MEASURES TAKEN TO EASE THE COST OF LIVING:
The Minister introduced temporary relief measures for maize, wheat and rice to cushion the economy from a looming
supply shortage. The minister also made the excise tax chargeable on kerosene to zero to reduce the cost of heating andlighting for poor families.
PENDING BILLS AWAITING APPROVAL:
The following are some of the most important bills that are awaiting approval besides others:
Insolvency Bill 2010
Companies Bill 2010
Limited Liability Partnership Bill 2010
Partnership Bill 2010
Other important regulatory bills are also expected to be tabled for approval.
CONCLUSION:
To ensure pro poor growth and sustainable development, this years budget continues to focus on key priority areas as abasis for allocation of the national resources. These include: improving access to quality education, enhancing efficientand a high quality health system, ensuring security for all persons and property, empowering the youth and vulnerablemembers of the society by engaging them in gainful employment and wealth creation, implementing of the newconstitution and promoting food security.
INTRODUCTION
BUDGET DEFICIT OF 7.5 % OF GDP TO BE BRIDGED BY FOREIGN FINANCING
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ECONOMIC REVIEW
KenyaThe Kenyan economy bounced back from the
lackluster growth of past few years and grew at
an impressive rate of 5.6% in 2010. The growth
more than doubled compared to 2.6% recorded
in 2009. Almost all the sectors of the economy
recorded positive growth during the year, mainly
due to overall macroeconomic stability, low
inflationary pressure, increased credit to the
private sector and improved weather condition.
The resurgence of the economy was also helpedby improved prices of the main exports (namely
Tea and Coffee) and increased remittance from
abroad.
The performance of the economy was uneven
across the different quarters of 2010. However
the momentum was sustained throughout the
year where the economy expanded by 4.4%
during the first quarter and ended the last quarter
of 2010 at an impressive rate of 6.9%.
The inflation rate remained low and stable
during the year, well within the government's targetof below 5% compared to 9.2% in 2009. The
average annual inflation was 4.1% in 2010. This
was mainly attributed to favourable weather
which resulted into improved agricultural
production and fierce competition between the
mobile telephone operators which led to a
considerable reduction in the call rates.
During the year the government maintained a
non inflationary monetary policy stance and
continued its focus on increasing the lending to
private sector. The Central Bank of Kenya revised
the Central Bank Rate twice during the year, first
in March 2010 by 25 basis points to 6.75%
and then in July 2010 by further 75 basis point
to 6.00% which is where it remained till the endof the year.
Good weather condition was one of the main
contributors to the positive performance of the
economy. During the year most part of the
country received favourable amounts of rainfall
that were well distributed over the time and over
the different parts of the country. This resulted in
increased output from the agricultural sector
leading to lower food prices and also increased
hydro power generation leading to adequate
power supply for the manufacturing sector.
The first signs of recovery from 2008 global
economic crisis were seen in the year 2010. Most
advanced economies hard hit by the crisis were
on the path of recovery and experienced positive
growth. The world real Gross Domestic Product
grew by 4.6% compared to a contraction of 1.0%
during 2009 whereas the world trade growth
increased by 12.3% compared to a decline of
11.1% during 2009.
This growth was mainly attributed to the austerity
measures put in place by the various economies
to counter the effects of the recession coupled
with various stimulus polices. The consumer
confidence was also back and there was a
rebound in demand for goods and services as well
as increase in trade.
OECD economies which fared worst during the
economic crisis experienced a recovery in real
International
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GDP estimated at 2.8% in 2010 compared to acontraction of 3.4 % in 2009. Two of the major
OECD economies the US and the UK both saw
improvement in the performance of the economy.
The US economy grew at 2.7% and the UK
economy grew at 1.8% compared to (-2.6%)
and (-5.0%) respectively in the year 2009. However
all was not well as some other indicators such
as unemployment rate, inflation and current
account balance to GDP ratio showed a
worsening trend.
A relative improved state of economy of OECD
countries also had a positive impact on EACeconomies. The total real GDP for the five member
countries of EAC increased by 5.4% in 2010
compared to 4.8% in 2009. This growth was
mainly due to political stability, favourable
weather conditions and increased demand for
commodity exports in the European markets.
A remarkable feature of this growth was that all
economies except Burundi recorded a growth of
above 5% in 2010. Also only Uganda recorded
a decelerated growth of 5.8% compared to 7.2%
in 2009.
The inflationary pressure also eased in 2010 to
6.5% compared with 11.4% in the year 2009 this
was mainly because of stable food prices on the
back of good weather.
The following chart shows the performance of
EAC (East Africa Community) countries in terms
of GDP growth and inflation rate for the years
2009-2011. 2010 figures are provisional and 2011
figures are projected.
Despite impressive growth during the year 2010
the outlook for the year ahead does not lookvery promising for the Kenyan economy. All the
performance indicators for the first quarter of
2011 Outlook
2011 point to a possibility of suppressedeconomic activities in the year. So far the year
has been characterized by high oil prices,
insufficient rains, high food prices and instability
in the foreign exchange market.
Political unrest in the oil producing nations of
Middle East and North Africa does not suggest
that the oil prices will fall to manageable level in
the near future. The rainfall has been below the
normal level for most part of the country and
Agriculture, Electricity generation and Water
supplies are therefore likely to be impacted onnegatively. There will also be direct effect of this
on the food prices as it will increase if the
agricultural production declines. Increased cost
of energy generation and high prices of raw
material are also likely to affect the manufacturing
sector adversely. Due to increasing costs, the
inflation which was largely under control during
last year stood at 12.05% in April 2011.
Finally difficulties in implementation of new
constitution and political uncertainty over 2012
general election pose additional challenges to
the growth. As a result of these challengesthe projected growth of the economy is expected
to be between 3.5% to 4.5% in 2011.
The global economy is expected to continue on
the path of recovery although at a slower growth
rate of 4.2% in the coming year. However the
uncertainty over the oil prices is going to affect
the economic growth in most countries. The price
of oil was US$ 114.95 in May 2011 and at this
level the productivity is likely to reduce. The EAC
countries are projected to grow at 6.2% in the
coming year. The operationalisation of East African
common market in July 2011 is likely to seeboost in the trade and free movement of goods,
services and labour across the region.
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After two consecutive years of poor performance,
the agriculture sector showed true resilience and
recorded impressive performance. The sector
grew by 6.3% in 2010 compared to declines of
4.1% in 2008 and 2.6% in 2009. This growth was
helped by favourable weather conditions in
addition to improved global demand. Provision of
affordable fertilizer and seeds to farmers also
resulted in increased production. The marketed
production increased by 18.9% to Kshs. 235.7
billion in 2010.
The year saw significant increase in the
production of almost all the crops. Most notably
maize production recorded an increase of 32.1%
during the year, thus significantly reducing the
dependence on imported Maize. Tea and wheat
also saw strong production increase of 27%
and 54.6% respectively during the year. The
quantity of horticultural exports fell by 33.7
thousand tones due to interruptions in air traffic
to European countries because of volcanic
eruption in Iceland and slow economic recovery
of European countries.
Agriculture
Transport, Storage andCommunicationsThe Transport, Storage and Communication
sector showed improved performance although
at a decelerated growth rate of 5.9% compared
to 6.4% in 2009. This growth was mainly
spearheaded by the telecommunications sub
sector. There was an increase of 15.9% in the
subscriber's base from 17.4 million subscribers
in 2009 to 20.1 million subscribers in 2010.
There were also important changes made in
regulations by The Communications Commission
of Kenya (CCK) mainly of reduction in
interconnection tariffs by 50% and of enabling
the Mobile Number Portability.
The country is currently served by three Sub-
marine Fiber Optic cables namely The East African
Marine System (TEAMS), East African Sub-marine
Cable System (EASSY) and Sea Submarine
Communications (SEACOM) Limited. The
availability of these cables has resulted in
increased speed of internet and broadband
availability at more affordable price.
The road transport subsector maintained steady
growth during the year where the earnings went up
by 16.4%. Over the years earnings from freight
traffic have been on increase, registering a growth
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of 27.3% in 2010. The container handling at theMombasa port also showed upward trend by
recording a growth of 12.4% in 2010.
Manufacturing is a key sector in the economy
contributing directly to exports and employments.
The sector grew by 4.4% in 2010 compared to
1.3% in 2009 despite high production costs, high
taxes, poor infrastructure and cheap imports.
The main reason behind improved performance
was favourable rains as bulk of the sector is
agricultural based. There was also increased
flow of credit to the sector which helped in
increasing the growth rate. The government did
its part by removing duty on capital equipments
and some raw materials.
The sub-sectors that registered impressive
performance were meat and dairy products, grain
mill products and miscellaneous food. On the
other hand sugar, electrical machinery, paper,
printing and publishing and rubber products
registered declines in output. Overall the exports
of manufactured goods rose marginally from
68.6% to 68.9%.
Manufacturing
TourismTourism remains one of the key sources of
foreign exchange earnings in the country. The
sector grew 17.9% surpassing the 2007 best year
benchmark. The total earnings improved
significantly from Kshs. 62.5 Billion in 2009 to
Kshs. 73.7 Billion in 2010.
The government has continued to market the
country abroad as a high value tourist destination
and as a result visitor's arrival recorded 8.0%
increase in the year 2010. This was despite the
disruption of flight services due to the volcanicashes in April 2010.
Conference tourism sub-sector is one of the
most extensive and rapidly growing sub sectors
within the industry. It is largely associated with
travel for business purposes and the related
events around it like exhibitions, conferences,
expositions and meetings. The number of local
and international conferences held in Kenya went
up by 12.0% and 29.6% respectively in 2010.
Other important sectoralperformancesThe Electricity supply increased by an impressive
11.9% in 2010, compared to a negative 5.2% in
2009. The sector benefited from sufficient rainfall
and significant increase in electricity production
from hydro sources. Hydro power accounted for
46.2% of total electricity generation
Financial intermediation recorded its highest
growth for the last decade growing at 8.8%
compared to 4.6% in 2009. The increase was dueto increased lending and financial innovation.
Construction sector recorded a slower growth
rate of 4.5% compared to 12.4% recorded in 2009.
Cement consumption increased by 16.2% to
3,104.8 thousand tonnes in 2010 as a result of
increased construction activities especially for
infrastructure projects.
The value of total Exports increased by 18.8%
to Kshs. 409,794 million compared to a negligible
growth recorded in the previous year. The Kenyan
shilling depreciated further against the US dollar
from an average annual exchange rate of Kshs.
77.35 in 2009 to Kshs. 79.23 in 2010 and as at
30 May 2011 it was Kshs. 86.00 to a dollar.
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TAX RATES
The Corporation tax rate remains unchanged at 30%since the year 2000.
Personal tax brackets still remain unchanged since theyear 2005.
There was wide expectation of a change in the personaltax brackets in view of the increasing inflation. Once againKenyans will have to bear the brunt of the spirallinginflation which has been experienced in the last fewmonths.
PERSONAL RELIEF
Employees with multiple employments can only claimpersonal relief once. (w.e.f. 9
thJune 2011).
This will curb practices where employees were purposelyenjoying multiple personal relief thus paying less tax.
SELF ASSESSMENT RETURNS
Individuals shall no longer be required to file selfassessment returns where 100% of the taxpayers incomeis from employment and PAYE has been duly remitted by
the employer. (w.e.f. 9
th
June 2011).
Taxpayers with other sources of income e.g. rental orbusiness income, will still be required to file their selfassessment returns.
PERSONAL IDENTIFICATION NUMBER (P.I.N.)
The Commissioner has now been empowered to enforceregistration of taxpayers in circumstances where theyrefuse to register. (w.e.f. 9
thJune 2011).
This aims to increase KRAs tax collections from nontaxpayers.
PRESENTATION OF ACCOUNTS
It has been clarified that taxpayers accounts shall only bepresented in Kenya Shillings and in either English orKiswahili. (w.e.f. 9
thJune 2011).
This clarification has been necessitated to resolve thechallenge posed by presentation of accounts in multipleforeign currencies and/or foreign languages by KRA.
TAX INFORMATION EXCHANGE AGREEMENT(T.I.E.A)
In view of the time taken to conclude double taxationagreements, KRA has been empowered to enter into taxinformation exchange agreements (T.I.E.A.) with othertax authorities.
This will enhance tax payer information exchange at
international level. This is likely to restrict tax evasionschemes.
RATE OF DEEMED INTEREST IN RESPECT OFTHINLY CAPITALISED COMPANIES NOW DEFINED
The Finance Bill of 2010 introduced deemed interest oninterest free loans advanced by related non-residentcompanies to thinly capitalized companies. The deemedinterest rate shall henceforth be prescribed by theCommissioner and not the average 91 day Treasury billrate prescribed in the previous Budget. (w.e.f. 9
thJune
2011).
This may negatively affect foreign investments to thecountry.
REAL ESTATE INVESTMENT TRUSTS (REITs)
A REIT is a vehicle which allows investors to poolresources together and invest in real estate. Theshareholders of the REITs acquire units which aretradeable at the stock market.
A REIT registered by the Commissioner shall be exemptfrom corporation tax and any income earned by theshareholders from the REIT shall also be exempt.
However any interest or dividend income that is earnedby such a REIT is subject to withholding tax at thespecified rates which shall be final tax. (w.e.f. 1
st
January 2012)
INCOME TAX
STILL NO CHANGE IN PERSONAL TAX BRACKETS!!!
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REMISSION OF PENALTY ON INSTALLMENT TAX
The Commissioner is now empowered to remit penalties onunderpaid instalment tax upto Kshs. 1.5 million up fromKshs. 500,000. This amendment is in alignment withremission of interest which is also under the power of theCommissioner upto Kshs. 1.5 million.
We anticipate that this will reduce the time taken for suchremissions which were initially restricted to the approval bythe Minister. This empowerment should also be extendedto penalties on unpaid balance of tax to align with the otherpenalties and interest
INSURANCE CLAIM PROCEEDS
Previously any sums received as insurance compensationwere taxable in the year of income in the year in which theloss arose. The Act has now been amended to assesssuch receipts from compensation in the year of receipt.(w.e.f. 9
thJune 2011).
Taxpayers will now be salvaged from the burden ofunnecessary penalties and interest which were levied fromthe period the loss accrued.
TRANSFER PRICING
The Transfer Pricing Rules provided guidelines involving a
resident tax payer which is an associate of a non-residenttax payer. The amendment now includes related concernsrather than just associated enterprises. (w.e.f. 9
thJune
2011).
This move is aimed at increasing the tax revenues from thetransfer pricing avenue as related concerns can includecompanies with common shareholders or relation whereasassociates would only include companies holding shares inanother.
EXEMPTION OF MEDICAL BENEFITS
Medical services or insurance provided by an employer to
his employees and their dependants is now an exemptbenefit which was previously restricted to permanentemployees only.
Employers will now be encouraged to extend medicalinsurance to the employees dependants taking intoaccount the high cost of medical expenses which Kenyanshave been facing.
WITHHOLDING TAX:
MANAGEMENT, PROFESSIONAL & TRAININGFEES
The withholding tax rate applicable on management,professional and training fees has been increased from5% to 10 %. (w.e.f. 9
thJune 2011).
This is likely to enhance early collection of taxes fromprofessionals. However, this will have an adverse impacton their cashflows.
GAMING & BETTING GAINS
Withholding tax has been introduced for winnings fromgaming and betting at the rate of 20%. (w.e.f. 1
st
January 2012).
This is a move to taxing winners in casinos and lotteriesoperated through electronic and print media.
LOCOMOTIVE AND ROLLING STOCK LEASERENTALS
Payments for locomotive and rolling stock lease rentalsfor trains are now exempt from withholding tax.
Rift Valley Railways can now provide better services toits customers!!
INCOME TAX
WITHHOLDING TAX ON PROFESSIONAL FEES NOW 10%
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Guidelines on allowability of Bad Debts
The guidelines on allowability of bad debts for taxpurposes have been now clarified through Legal NoticeNo. 37 which was published in the newspapers.
1. A debt shall be considered to have become bad if itis proved to the satisfaction of the Commissioner tohave become uncollectable after all reasonable stepshave been taken to collect it.
2. A debt is considered to have become uncollectablewhere:
The creditor loses the contractual right thatcomprises debt through a court order.
No form of security or collateral is realisable whetherpartially or in full.
The securities or collateral have been realized butthe proceeds fail to cover the entire debt.
The debtor is adjudged insolvent or bankrupt by acourt of law.
The costs of recovering the debt exceeds the debtitself; or
Efforts to collect the debt are abandoned for anotherreasonable cause.
3. A bad debt shall be a deductible expense only if itwholly and exclusively incurred in the normal courseof business.
4. A bad debt which is of capital nature shall not be anallowable expense.
Guidelines on sale of Immovable PropertyIn light of the booming development, construction anddisposal of property in Kenya, the KRA have published inthe daily newspapers, guidelines on taxation of gainsarising from the disposal of such immovable propertywhich are outlined here below:
The sale of immovable property is considered to be abusiness where one or more of the following hasoccurred:
1. Where property is dealt with to make profit throughits sale as specified in the memorandum and articlesof association.
2. Where the acquisition of the property by the
company, partnership or individual was with the aimof disposing it thereafter for a profit
3. Where the sale of property is organized in a mannerindicating that the seller is a property dealer or washolding the property as stock for trade
4. Where property transactions are recurrent and/or
undertaken in series similar to ordinary trading bydealers and/or developers who buy and sell propertyon a regular basis.
5. Where property was acquired or held with the aim ofdeveloping and selling it thereafter. Suchdevelopments include construction of residential andcommercial buildings, driveways, drainage and othersupporting infrastructure.
6. Where property held in the form of shares, istransferred through sale of share of the shares in acompany and its acquisition, holding and disposalfulfils the conditions specified in these guidelines.
7. Any other instance which indicates that the acquisition,holding and disposal of the property was undertaken
within the framework of business activity of dealing inproperty.
Guidelines on Amnesty for Citizens in the Diaspora
Kenyan citizens living and earning taxable income outsideKenya have been allowed tax amnesty subject to thefollowing procedures and conditions:
1. The taxpayer shall apply for amnesty by completing theamnesty application form.
2. The completed form should be forwarded to theCommissioner together with the evidence todemonstrate that the applicant has been living abroador is living abroad. The evidence includes residence orwork permit or any other travel document that wasissued by the country of residence.
3. The application shall be accompanied by the return forthe year of income 2010. Disclosure of sources ofincome and supporting evidence is required. Suchevidence may include, employers certificate ofemoluments in the case of employee and financialstatements in all other cases with full disclosures ofassets and liabilities as at 31.12.2010.
4. The application and attachments mentioned in 2 and 3above shall be submitted to the Commissioner on orbefore 30.06.2011
5. On receipt of such application, the Commissioner shall,where the taxpayer qualifies for amnesty, refrain fromassessing or recovering taxes, penalties or interest in
respect of any year of income ending on or before31.12.2010.
6. The amnesty shall not apply where:
The taxpayer has been assessed for tax, or
The taxpayer is under audit or investigation in respectof undisclosed income
Income is earned from an employer or person with apermanent establishment in Kenya.
INCOME TAX
TAX ON SALE OF PROPERTY
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IMPORT DUTY REDUCED / EXEMPTED ONFOLLOWING ITEMS:
Promoting Agriculture for Food Security andEmployment
Aseptic plastic bags used to store fruit extractsfrom 25% to 10%(w.e.f. is 9
thJune 2011)
This will support the fruit farmer and the fruit extractorsby reducing cost and increasing competitiveness.
Premixes used in manufacturing Animal andPoultry Feeds from 10% to 0%(w.e.f. is 9
thJune 2011)
Poultry and dairy industry is an important sub-sector inthe region and the above reduction will positivelyimpact on the cost of these critical inputs used in theindustry.
Going Green
Raw material for the manufacture of Solar Panelsfrom 25% and 10% to 0%.(w.e.f. is 9
thJune 2011)
This will protect the local manufacturers of SolarPanels as imported solar panels are already duty free.
Battery Operated Vehicle are now duty exempted(w.e.f. is 9th June 2011)
It is an appropriate move not only to encourage agreener environment but also to save the foreigncurrency used in the import of Petrol.
Positioning Kenya as an Aviation Hub
Apron buses used at airside are now duty exempted.(w.e.f. is 9
thJune 2011)
This will promote the quality of services provided topassengers at the airports.
Strengthening the Internal Security
Exemption on Imported Police Vehicles(w.e.f. is 9
thJune 2011)
Security is a critical factor in attracting globalinvestment in Kenya. This exemption will enhanceKenya to become a preferred regional investmentdestination.
Exemption on import of Security Equipment such
as metal detectors, CCTV cameras, bombdetectors, under carriage walk through metaldetectors and under carriage mirrors.(w.e.f. is 9
thJune 2011)
In the wake of global terrorism and security threatsthese exemptions will enable security providers toprovide better quality of this critical service.
High Food Prices and Availability of Food
All types of rice from 75% to 35 % for a period ofone year.(w.e.f. is 9
thJune 2011)
There is currently a gap in meeting the demand forrice from local production. This step will suffice thegap with cheaper rice imports.
Wheat Grain from 10% to 0% for a period of oneyear.(w.e.f. is 9
thJune 2011)
This is to tackle the low capacity to produce wheatgrain locally.
Maize Grains from 50% to 0% for a period of sixmonths.(w.e.f. is 9
thJune 2011)
Due to unfavourable weather conditions theproduction of maize grains has fallen drastically inthe region. This reduction for a period of six monthswill help meet the demands till the next season.
Food Supplements from 25% to 10%.(w.e.f. is 9
thJune 2011)
This is to make the food supplements moreaffordable so as to improve the health of thepopulation.
Medical Facilities in Rural Areas
Motor Cycle Ambulance is now exempted.(w.e.f. is 9
thJune 2011)
This is to bring it in line with motor vehicleambulances which are already exempted from importduty.
CUSTOMS AND EXCISE
SAFER KENYA
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EXCISE DUTY REDUCED / EXEMPTED ONFOLLOWING ITEMS:
High Cost of Living
Kerosene is now exempted.(w.e.f. is 9
thJune 2011)
High global oil prices have diversely affected the costof living of Kenyans. This will be a major relief from theincreasing cost of living.
EXCISE DUTY INCREASED ON FOLLOWING ITEMS:
Increased Revenue from Tobacco and Alcohol
Cigarettes are now taxed at Kshs 1,200 per mille or35% of the retail selling price, whichever is higher.(w.e.f. is 9
thJune 2011)
The above is to harmonize the excise duty regime forcigarettes in line with the public health objectives ofreducing tobacco consumption.
Stout Porter and other beer made from malt fromKshs 65 per litre to Kshs 70 per litre or 40%,whichever is higher.(w.e.f. is 9
thJune 2011)
Cider, Opaque beer and other fermented
beverages from Kshs 55 per litre to Kshs 70 per litreor 40%, whichever is higher.(w.e.f. is 9
thJune 2011)
Wines from Kshs 70 per litre or 35% to Kshs 80 perlitre or 40%, whichever is higher.(w.e.f. is 9
thJune 2011)
The above is to harmonize the excise duty rates in linewith the public health objectives of discouraging abuseof beer and wines.
VAT RATE
The general rate of VAT remains unchanged at 16%.
ANTICIPATED NEW VAT BILL
In anticipation of the new VAT act being enacted, noVAT amendments are contained in the finance bill2011-2012.
The draft bill will be posted on the treasury websitefor your comments and thereafter the revised VATbill will reviewed in a stakeholders workshopscheduled for end of August 2011.
CUSTOMS AND EXCISE
NO EXCISE DUTY ON KEROSENE
VALUE ADDED TAX
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BANKING ACT
The Minister proposed to amend the Banking Act torequire the Central Bank to formulate guidelines to allowbanks to enter into arrangements with banks outsideKenya to offer limited banking services to customerswhile they are abroad. This amendment enables localbanks to provide banking services without having toopen subsidiaries or branches outside the country.(w.e.f.1
stJanuary 2012)
BANKING AND MICROFINANCE ACTS
The Minister proposed to amend both Acts to allow forcredit information sharing by institutions licensed underthe two Acts. This amendment was made with a view tobroaden the sharing of credit information to cover thenew deposit taking Microfinance Institutions. (w.e.f. 1
st
January 2012)
MICROFINANCE ACT
The Minister has proposed to include the definition ofcontrol of an entity in the Act.
Amendments have been proposed to restrict institutionsfor lending limits not only to single borrowers but toinclude their associates in the limit.
Corporate or nominee shareholders will be required todeclare ultimate beneficial owners of the shares to theCentral Bank.
Additional disqualification criteria for appointment ofdirectors have been introduced to curtail appointment ofpersons with dishonest/unscrupulous records.
The Central Bank will now be required to assess theperson managing / controlling an institution making apositive change for corporate governance requirements.
The Minister proposed to amend the Act to prohibitdeposit taking business by un-licensed entities. Thisamendment was made to prevent unscrupulous personsfrom engaging in deposit taking business.
The Minister further proposed to amend the MicrofinanceAct to prohibit institutions which obtain approval from theRegistrar of Companies to use the words DepositTaking Microfinance in their business name fromcommencing deposit taking business before beingissued with a deposit taking license by the Central Bank.(w.e.f 1
stJanuary 2012)
CENTRAL BANK OF KENYA ACT
The Minister has proposed to amend the Act to includethat Forex Bureaus will require to renew their licences byevery 31
stDecember. Earlier forex bureau licences were
valid for 12 months from the date of issue. (w.e.f 1st
January 2012)
CAPITAL MARKETS ACT
The Minister has proposed to introduce a revisedCapital Markets (Amendment) Bill 2011. (w.e.f. 1
st
January 2012)
The proposed Bill facilitates introduction of an Over theCounter Market for bonds, whereby bonds can betraded outside the approved securities exchange aswell. This measure will go a long way to facilitateissuance of bonds by small and medium enterprises.(w.e.f. 1
stJanuary 2012)
The Minister also proposed to introduce a regulatedfutures market for commodity derivatives trading in theproposed Bill. (w.e.f. 1
stJanuary 2012)
An amendment to the Act is proposed to introduce RealEstate Investment Trusts to be included in the Act.(w.e.f. 1
stJanuary 2012)
INSURANCE ACT
Insurance Regulatory Authority has been given powersto assume control over all or part of the assets of theinsurance company in order to protect the interests ofpolicy holders. This will apply to troubled insurancecompanies.(w.e.f. 1
stJanuary 2012)
In cases where it is established that assets have been
misappropriated, the Authority may hold the directors
jointly and severally liable. (w.e.f 1st
January 2012)
The Insurance Act has been amended to give powers tothe Insurance Regulatory Authority to govern the
industry rather than the Minister of Finance. (w.e.f. 1st
January 2012)
Insurance companies wishing to open a new branch or
move an existing branch of the company are required to
apply to the Commissioner and the following will be
assessed before the application can be granted:-
o History and financial condition of the insurer;
o Adequacy of capital base & structure of insurer;
o Viability and prospects of the branch;
o Any matter having bearing for the new branch;and
o Application fee of K shs. 20,000 introduced.
(w.e.f. 1st
January 2012)
The Minister further proposed to adopt a mortality tablereflective of the Kenyan mortality rates rather than usingthe table of the U.K. Mortality rates for the period 1949 1952 to determine the pricing of life insurancecontracts.(w.e.f. 1
stJanuary 2012)
MISCELLANEOUS
MODERNISING CAPITAL MARKET ACT
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TRAFFIC ACT
The introduction of a computerized motor vehicle
registration system with a requirement to submit an
application if registration numbers are needed.(w.e.f.
1st
January 2012)
Sellers are required to inform the Registrar that they
have sold their vehicle.(w.e.f. 1st
January 2012)
CENTRAL DEPOSITORIES ACT
The Minister has proposed to introduce a revisedCentral Depositories Act, 2011 (w.e.f. 1
stJanuary
2012) The proposed bill aims to provide for licensing
guidelines and to strengthen the supervision of centraldepositories by the Capital Markets Authority and toprovide stronger settlement policies.(w.e.f. 1
stJanuary
2012)
The definition of central depositories includes acompany which operates a system for the centralhandling of securities.(w.e.f. 1
stJanuary 2012)
Central Depositories shall be required to have an auditcarried out at the end of every financial year. (w.e.f. 1
st
January 2012)
OTHERS
The Minister proposed to amend the Kenya Informationand Communication Act to make it mandatory for issuersof SIM cards to ensure registration before activation foruse by their subscribers. This is a formality as therequirement to register has been there since lastyear.(w.e.f. 1
stJanuary 2012)
The Minister proposed to amend the law to remove therequirement for the appointment of fund managers bypension schemes that invest all their funds in guaranteed
funds. This amendment intends to reduce theadministration cost of pension schemes that invest alltheir funds in guaranteed funds.(w.e.f. 1
stJanuary 2012)
A new bill The Central Depositories (Amendment) Bill,2011 has been introduced by the Minister.(w.e.f. 1
st
January 2012)
KENYA BUDGET ALLOCATIONOrdinary Revenues (Kshs b):
2009/10 2010/11 2011/12Actual Revised Estimates
Import duty 57.2 67.1 79.5Excise duty 74.3 84.0 93.5PAYE 121.5 139.3 160.6Income Tax 97.9 122.5 146.3VAT 141.9 174.4 205.3Others 14.4 18.7 28.8
Total 507.2 606.0 714.00
BUDGET FUNDED BY2011/12
Estimates
Kshs(Bn)Ordinary Revenue 714Appropriation in Aid 76Grants 42Domestic Borrowings 120Foreign Borrowings 117Other 86
Total 1,155
BUDGET SPENDING ALLOCATION2011/12
EstimatesKshs(Bn)
Education 226.60
Physical Infrastructure 221.40Consolidated Fund Services* 209.50Governance, Justice, Law &Order 121.50Finance 69.20Health 64.00Defense 58.40Environment, Health & Irrigation 57.00Special Programs 36.10Planning 34.00Agriculture 33.30Trade, Tourism & Industry 12.10Foreign Affairs 9.90Civil Contingency Fund 2.00
Total 1,155
*Public debt servicing, salaries, allowances, pension& gratuity of constitutional offices.
MISCELLANEOUS
FIRST EVER TRILLION SHILLING BUDGET
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The first budget of the 9 Parliament of Uganda waspresented by Minister of Finance, Planning and Economic
Development Honourable Ms. Maria Kiwanuka. Thebudget theme was Promoting Economic Growth, JobCreation and Improving Service Delivery.
UGANDA ECONOMIC REVIEW
GDP Growth
The Ugandan Economy has grown due to recovery in theconstruction sector and strong performance in thetelecommunications, financial services, mining andquarrying sub-sectors.
The economy has grown at the rate of 6.3% in comparisonto 5.5% for the financial year 2009-10.
Inflation Rates
Uganda's May annual headline inflation accelerated from14.1% to 16% in April 2011, the highest levels in over adecade, propelled by higher food and fuel prices. Foodcrop prices registered an increase of 44.1% while pricesfor electricity, fuel and utilities increased by 9.1%.
Inflation in May 2010 was 4.4%. The trend of the increasein inflation has been alarming and in particular havingdoubled over the last 3 months. The current pace of thedomestic inflation in Uganda is largely driven by bothdomestic and global trends, but the causes are temporaland the situation is foreseen to reverse in the months
ahead.
Exchange Rates
The exchange rate of the Ugandan Shilling against the USDollar was approximately 2,390 Shillings per one USDollar during the first week of June 2011. In comparison,in June 2010 the exchange rate was 2,180 Shillings perone US Dollar.
The Ugandan Shilling has depreciated more against thedollar in comparison to the other three major regionalcurrencies. The exchange rate is not expected todepreciate further and this is likely to raise the inflation
and/or interest rates.Interest Rates
Interest rates have remained at the same level at theapproximate rate of 19% in April 2011 i.e. similar to lastyear.
T-Bill Rates rose to 11.3% in May 2011 in comparison to6.2% in June, 2010. This increase reflects the monetary
policy which has been tightened in order to avoid higherinflation.
International Trade
Exports have increased from USD 2.32 Billion to USD2.43 Billion whereas imports have increased from USD 4Billion to USD 4.54 Billion. This has widened the TradeDeficit.
Coffee Exports have increased by 13.1% while CottonExport Earnings have increased by 296% from USD 17Million to USD 67 Million.
SECTORAL ANALYSIS
Agricultural Sector
The Agricultural Sector has grown by 0.9% incomparison to 2.4% in 2010. This is attributed to poorrainfall and drought.
The Agricultural Credit Facility has been maintained atUshs. 60 Billion. This amount has contributed in equalproportions by government and participating commercialbanks.
Ushs. 133 Billion has been allocated to NationalAgricultural Advisory Services in order to increasecommercialisation of improved seeds and other plantingmaterials.
Industrial Sector
The Industrial Sector growth is estimated to be 7.5% incomparison to 6.5% growth which took place in 2010.
This increase has mainly contributed to increase in theconstruction sub-sector and mining and quarrying sub sector at the rate of 7.7% and 15.8% respectively.
Service Sector
The Service Sector has recorded a growth of 8% incomparison to an increase of 7.4% in 2010. The growthhas mainly contributed to the growth in thetelecommunication sub-sector and financial services subsector at the rates of 21.2% and 10.3% respectively.
Oil Sector Management
The government intends to introduce The Resource Lawto ensure efficient licensing, development, productionand utilization of oil resource. In addition an Oil Revenuefund has been proposed. This fund will become part ofthe budget.
UGANDA BUDGET REVIEW
EDUCATION SECTOR GETS PRIORITY OVER OTHER SECTORS IN THE FIRST BUDGET OF 9th THE PARLIAMENT
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BUDGET RESOURCE AND ALLOCATION
The budget intends to raise Ushs. 6,330 Billion fromdomestic revenues. This comprises of tax & non-taxrevenues and domestic loan repayments. The PetroleumSector aims to generate Ushs. 828 Billion. Ushs. 2,900Billion is expected from External Financing and thiscomprises of 29% of the total budget funding.
The Budget has been allocated to the followings sectors:
The Transport Sector has been allocated Ushs. 1,219Billion which is to be used towards theimplementation of key projects.
The Energy Sector has been assigned Ushs. 850
Billion which is to be used for the construction of the600 MW Karuma Hydro Project.
The Educational Sector has received Ushs. 1,242Billion. The reason for the large apportionment is dueto the success in primary and secondary educationsub-sector.
The Health Sector has been allocated Ushs. 660Billion.
The Agricultural Sector has been allocated Ushs. 365Billion.
TAX PROPOSAL
Income Tax
The definition of Royalty will be amended to includepayments made as consideration for internet broadcasting.The details of these amendments shall be contained in theIncome Tax (Amendment) Bill, 2011.
The Transfer Pricing Regulations shall be streamlined bypublication of the Transfer Pricing Regulations. TheRegulations will be gazetted and shall be effective from 1stJuly, 2011.
Value Added Tax
The VAT treatment on imported services was clarified tostate that VAT shall be applied to imported services wherethe recipient of services is a taxable person.
The supply of solar energy has been exempted from VAT toencourage the supply of solar power in rural areas bycommercial solar producers.
Stamps Act
The provision relating to stamp duty which is applicableon securities given in procuring small loans to smallincome earners whose threshold does not exceed 2million shillings has been removed.
Excise Act
Excise duty on sugar has been reduced by 50% as it isa necessary commodity. The reduction will lead to arevenue loss of Ushs. 8.5 Billon
In light of the high fuel prices, the budget has proposedto remove excise duty on kerosene. This proposal willlead to a revenue loss of Ushs. 12 Billion.
Levy on exports and outward processing of raw hidesand skins has been increased from USD 0.4/Kg to USD0.8/Kg.
Tax Reforms
The investment trader facility has been abolished.
New Tax Procedure Code is to be introduced inParliament next year.
Import Duty
Remission of import duty on road tractors, semi-trailersand trucks of a carrying capacity of over 20 tonnes has
been extended by one year.
Import taxes on component parts and for theassembling of refrigerators and freezers have reducedfrom 25% to 10%.
Import duty on hoes has reduced from 10% to 0%.
Import duty on food supplements has reduced from25% to 10%.
Import duty on premixes used in manufacture of animaland poultry feeds has been removed.
Import taxes on motor cycle ambulances have beenremoved.
Double Tax Treaty
Double Taxation Agreement among the East AfricanCommunity has been concluded and has been laidbefore the parliament for approval.
UGANDA BUDGET REVIEW
TRANSFER PRICING REGULATIONS TO BE MADE EFFECTIVE FROM 1st JULY, 2011
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The 2011/2012 budget was presented by The Minister forFinance Honourable Mustafa Mkulo on 8th June, 2011.The Honourable Minister also presented the EconomicSurvey for 2010 and the Development Plan for 2011/2016.
ECONOMIC REVIEW
The GDP is expected to grow by 6% in the current financialyear with a projected growth of 7.2% in 2012.
Overall inflation stood at 8.6% as at April, 2011. The mainaim is to contain inflation rate to single digit levels.
BUDGET SOURCE AND ALLOCATION
The budget projections for the year 2011/12 reflectexpenditure of Tshs. 13,525 Billion with a budgetary deficitof Tshs. 393.4 Billion. The roll-over deficit of Tshs. 810.9Billion with projected deficit is intended to be borrowedfrom domestic financial markets.
BUDGET ALLOCATION
Revenue Shillings Million
A: Domestic Revenue 6,775,952(i) Tax Revenue (TRA) 6,228,836(ii) Non Tax Revenue 547,116
B: LGAs Revenue 350,496
C: Foreign Loans and Grants 3,923,551D: Domestic Revenue 1,204,262E: Non Concessional Loan 1,271,634
TOTAL REVENUE 13,525,895
F: Recurrent Expenditure(i) Consolidated Financial Services 1,910,376(ii) Wages and Salaries 3,270,292(iii) Other Charges
Ministries 2,727,472Region 49,981LGAs 642,166 3,419,619
8,600,287G: Development Expenditure(i) Local 1,871,471(ii) Foreign 3,054,137 4,924,608
TOTAL EXPENDITURE 13,525,895
INCOME TAX
Tax exemption is granted on allowances payable toemployees of the Government and institutions whichreceives government subvention for their operations.
Withholding Tax on fish transport for foreign freight hasbeen abolished.
(Above IT measures will REDUCE Government revenueby Tshs. 20,287.5 Million)
VALUE ADDED TAX
ITEMS EXEMPTED FROM VAT
Spare parts for threshers, rice dryers & mills, planters,trailers and power tillers used in organized farming.
NASCOR Pellet Feed used for poultry.
Raw Materials used for making fishing nets.
Spare parts for sprayers, harrows and grain conveyors.
VAT Special Relief is introduced for Non Governmentalorganizations whey they provide food supplies to childrenand orphanage care centres and school.
VAT exemption on sale and lease of residential buildingsby the National Housing Corporation has been abolished.
VAT exemption on Charitable Community-basedorganizations or other non profit driven organizations orNGOs (Excluding Religious Organizations) has also beenabolished.
(Above VAT measures will INCREASE Governmentrevenue by Tshs. 71,518.9 Million)
EXCISE DUTY
Reduce excise duty on HFO from shilling 80 to shilling 40
per litre
Replace 120% Excise duty imposed on plastic bags ofmore than 30 microns of polymers with 50%.
Specific excise duty rates on non petroleum products isadjusted by 10%.
TANZANIA BUDGET REVIEW
OUR AIM WILL BE TO CONTAIN INFLATION RATE TO SINGLE DIGIT LEVELS HON. MUSTAFA MKULO
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Excise duty rates on Cigarettes of different categories areincreased by 10%.
Excise duty rate on Cigars remains 30 percent
(Above Excise Duty measures will INCREASE Governmentrevenue by Tshs. 99,521.5 Million)
STAMP DUTY ACT
Stamp duty on transfer of ownership of assets to theSpecial Purpose Vehicles for the purpose of issuing asset-backed securities has been exempted.
(No impact on Government revenue)
THE ROAD & FUELS TOLLS ACT
Exempt fuel levy charged on fuel for vessels, rigs and otherequipments used in oil and gas exploration
Mining companies will be required to draw their estimatedannual petroleum consumption plans and deposit moneyon account equal to estimated taxes on petroleum productsconsumed in a given month in a special account of TRA.This will aim to remove bottlenecks faced due to delays intax refunds.
(Above measures will INCREASE Government revenue byTshs. 2,007.6 Million)
THE BUSINESS LICENSING ACT
Business Licence Fee has been imposed at annual fees ofTshs. 50,000 for Town Authorities, Tshs. 30,000 for DistrictCouncils and Tshs. 10,000 for Village Councils.
THE ROAD TRAFFIC ACT
Traffic Notification Fee has been increased from Tshs.20,000 to Tshs. 30,000.
CUSTOMS MANAGEMENT ACT
Import Duty has been exempted on the following items:
Security Equipments (Hand Held and Walk through MetalDetectors) and
Battery Operated Vehicles/Golf Carts for hotels, hospitals &airports and Apron Buses at airports.
Remission of import duty on manufacture of solar panelswherein imported solar panels will be duty free andimported raw materials for manufacture of the same willattract duty of 25% and 10%.
Destination Inspection Fee is reduced from 1.2% to 0.6%of FOB for all imported products.
Import Duty has been exempted to the police force toenhance internal security.
(The above measures will REDUCE government revenueby Tshs. 4.67 Billion)
COMMON EXTERNAL TARIFF (CET)
The following changes have been agreed for applicationof CET.
CET on Wheat Grain reduced from 35% to 10%.
Duty Remission for Duplex Boards reduced to 0%.
Duty Rate on Galvanized Wire increased from 0% to10%.
0% duty on premixes used in manufacture of animal andpoultry feeds.
Duty Rate on Food supplements will be 10%.
Import Duty on Road Tractor at 0% for one year.
Motor Cycle Ambulances exempted from Import Duty.
Duty rate of 10% shall be applicable for motor vehiclescarrying more than 25 persons.
Duty rate of 10% shall be applicable for one year formotor vehicles transporting goods with gross vehicleweight exceeding 5 tonnes but not exceeding 20 tonnes.
Import duty rate of 10% for one year in respect of busesthat will be catering for Dar Es Salaam Fast Track Bus
Project.
Import duty remission on component parts and inputs forassemblers of refrigerators and freezers and apply dutyrate of 10% instead of 25%.
Extend the exemption granted to Armed Forces canteenfor one year.
TANZANIA BUDGET REVIEW
DESTINATION INSPECTION FEE REDUCED FROM 1.2% TO 0.6% ON FOB OF IMPORT PRODUCTS
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The Minister of Finance and Economic Planning
Honourable Mr. John Rwangombwa presented thegovernments budget and economic policy for the financialyear 2011/12. The theme of the budget was Ensuring foodsecurity and price stability whilst promoting sustainablegrowth.
RWANDA ECONOMIC REVIEW
GDP Growth
The Rwanda Economy showed a growth 7.5% comparedto 6.5% in the previous year. The growth of the economy isbetter compared to the average growth of the East Africanand the Sub-Sahara African Economy.
The growth is attributable to Agricultural Sector. Besidesthe Agricultural Sector, other contributing sectors wereIndustrial and Service Sector.
Inflation Rates
Inflation has been well in control despite high inflation inthe East African Region. The main reasons being gooddomestic harvest, low import prices and stable exchangerates.
The year-on-year inflation fell to 0.2% in Dec 2010 from5.7% in Dec 2009. However, the rising fuel and food prices
have led to inflation rates at 4.98% in April, 2011.
International Trade
Exports for the year increased to USD 297.3 Millionsurpassing the estimates of USD 285.5 Million recording agrowth of 27%. Imports on the other hand increased toUSD 1,084 Million, an increase of 8.5%.
Coffee and Tea export increased to USD 56.1 Million andUSD 55.7 Million respectively.
Mineral Exports increased from USD 55.4 Million to USD67.9 Million. This sector showed reduction in export volume
but benefitted from increased world prices.
Tourism sector showed good growth with total receipts ofUSD 201 Million.
Import of capital goods accounted for 25% of total importswhile construction & industrial raw materials accounted for27% of total imports.
SECTORAL ANALYSIS
Agricultural Sector
Being an Agricultural economy, the growth of theeconomy is highly reliant on the performance of theagricultural sector. However, the sector recorded agrowth of about 5% which is lower than the 7.7%achieved in the previous year.
Industrial Sector
Growth in the manufacturing sub-sector was mainlyattributed to growth of the food processing sector whichregistered a growth of 9% compared to 3% in theprevious year.
Electricity, Gas & Water sub-sector recorded growth of15% while the Construction Sub-sector recorded agrowth of 9%.
Service Sector
Growth in service sector reached 9% compared to that of5.9% in the previous year, the main sub-sectors beingfinancial services, ICT and Tourism.
BUDGET SOURCE AND ALLOCATION
The fiscal budget for the year 2011/12 looks to raise Rwf
974 Billion recording a substantial increase of 15.5%from Rwf 844.2 Billion.
Domestic Revenue collections are projected at Rwf 529.4Billion. Tax collections are estimated at Rwf 501.4 Billionwhile non-tax collections are estimated at Rwf 28 Billion.
Donor Grants and loans shall amount to Rwf 444.7 Billionwhich is 45.6% of the total revenue projections.
This is mainly due to the fact that the country is nowconsidered as a moderate risk economy in terms of debtdistress and also because World Bank no longerconsiders the country as a GRANTS ONLY country.
Total Budgetary Expenditure is predicted to be Rwf1062.8 Billion showing an increase of 7.6% from Rwf.988.1 Billion.
This shall lead to an overall cash deficit of Rwf 96.8Billion.
RWANDA BUDGET REVIEW
RWANDA NO LONGER A GRANTS ONLY COUNTRY WORLD BANK
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Recurrent Expenditure is estimated at Rwf 557.9 Billion
while Capital Expenditure is expected to be Rwf 503.3Billion.
Budget allocation has been divided into priority sectors andthe allocations are highlighted as under:
Education Sector has been allocated Rwf 170.5 Billionmaking this sector the largest beneficiary of funds in theallocation.
Health Sector has been allocated Rwf 131.9 Billion withprime focus on commencement of Rwanda Bio-MedicalCenter and promotion of new health insurance policy.
Agriculture Sector has been allocated Rwf 67.1 Billionthat will include completion of a strategic grain reserve inKigali Free Trade Zone.
Communication Sector has been allocated Rwf 25.7Billion, one of the key projects being deployment of theNational Backbone Infrastructure with a view to acquireaffordable and reliable connectivity.
Transport Sectorhas been allocated Rwf 75.2 Billion.
Energy Sectorhas been allocated Rwf 98.6 Billion.
Trade and Industry Sector funding has decreased fromRwf 55.5 Billion to Rwf 35.2 Billion mainly due to shift of the
Rwanda Development Board from The Ministry of Tradeand Industry.
Social Protection and Governance Sector has beenallocated Rwf 48.3 Billion recording an increase of 26%from the previous financial year.
INTRODUCTION OF ELECTRONIC TRANSACTIONDEVICES
With effect from 1st
July, 2011 the budget proposesintroduction of Electronic Transaction Devices. Theintroduction is aiming at increasing VAT efficiency andcollections. The first phase will target Large and Medium
sized Retailers.
VAT PAYMENT BY GOVERNMENT ENTITIES
The budget has proposed that VAT be deducted at sourcebefore the government entities make payments with an aimto reduce cost of collection and ensuring prompt paymentby taxpayers.
FUEL TAX RATES
Currently fuel tax rates are considerably higher than theregional average tax rates. Fuel tax on petrol and dieselare Rwf 283 and Rwf 250 respectively.
These high rates lead to increased transportation costsand overall inflationary pressures.
To reduce the inflationary pressures and also tostreamline the tax rates to those in the region, the budgetproposes to reduce fuel taxes by Rwf 100 per litre forboth petrol and gas oil.
The reduction shall be in two phases with the reductionof Rwf 50 with immediate effect and the balance Rwf 50from January 2012.
COMMON EXTERNAL TARIFF
The request of Rwanda to stay the application of theCommon External Tariff in the East Africa Community forone more year was agreed on the following products:
Wheat Flour CET of 35%
Rice CET of 30%
Truck carrying capacity not exceeding 20 tonnes CETof 10%
Construction materials for investors with projects of atleast USD 1.8 Million CET of 5%
Tractors and Wheat Grain CET of 0%
INTRODUCTION OF GAMING TAX
The Rwanda Gaming Corporation currently is not payingtaxes because the gaming law has not been passed.
The budget proposes, the gaming law to be passed andalso proposes introduction of gaming special tax of 13%
and a withholding tax of 15%.
RWANDA BUDGET REVIEW
ELECTRONIC TRANSACTION DEVICES BEING INTRODUCED WITH EFFECT FROM 1st
JULY 2011
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The budget of Burundi presented by Hon FinanceMinister Clotilde Nizigama was passed on 13th January,2011, the budget being the East African Nations biggestever budget.
ECONOMIC REVIEW
GDP Growth
The GDP grew by 3.9% and is likely to grow at 4.5% in2011 as per estimates from IMF.
According to estimates from IMF, Burundi is one of theworlds poorest nations and relies heavily on coffeeexports that accounts for two-thirds of total exports of
Burundi.
Inflation
Burundis year-on-year inflation rate jumped to 8.4% inApril 2011 from 5.7% in March 2011.
BUDGET SOURCE AND ALLOCATION
The budget expects to raise BF 927.35 Billion recordingan increase of 27.6% compared to previous year.Spending is estimated to be BF 1,003 Billion an increaseof 19% compared to previous year.
It is expected that 51% of the budget is to be funded bydonors, with the government expecting grants worth BF469.1 Billion.
The Fiscal Deficit is likely to fall to BF 99.2 Billion.
Agriculture Sectorhas been allocated BF 36.29 Billion.
Public Health Sector has been allocated BF 19 Billionwith main priority being construction of Karusi Hospital.
Energy Sector will receive BF 12 Billion mainly forconstruction of Mpanda Hydro-Electric Station. BF 2.8Billion will be allocated for provision of drinking water.
Budget for Primary and Secondary Education has beenallocated BF 6.91 Billion recording a significant drop fromallocation of BF 17.48 Billion in previous year.
Environment has been allocated BF 6 Billion.
COMPARATIVE ANALYSIS OF EAC MEMBERS:
Indicators KE TZ UG RW BU
SurfaceArea(1,000 SqKm)
582.7 939.3 241.6 26.3 27.8
Population(inMillions)
41.07 42.7 34.6 11.4 10.22
LiteracyRate(2009)
62% 70% 73% NA 47%
Real GDP(2010)
5.6% 6% 6.3% 7.5% 4.5%
InflationRate 12.05% 8.6% 16% 4.98% 8.4%
CurrencyKSHS TSHS
USHS
RWF BF
ExchangeRate(1 USD)
87 1,570 2,390 591 1,210
CurrentA/cBalance(% of GDP)
-7.8 -8.8 -6.4 -7.7 -9.1
BudgetEstimates(in Billions
USD)
13.28 8.61 2.65 1.65 0.77
ExternalFinancingas a % ofBudget
13.76% 38.4% 29% 45.6% 51%
KE Kenya TZ Tanzania UG Uganda RW Rwanda BU Burundi
NA Data not available
All figures are as at June, 2011 unless otherwise stated.
Budgetary details for Burundi are for fiscal year 2011commencing from January, 2011. The details for othercountries are for fiscal year 2011/12 commencing July,2011.
The budget review has been compiled by VKM Teamon 9
thJune, 2011 based on data available on that date.
VKM assumes no responsibility for any errors oromissions and advise to seek professional guidance
BURUNDI BUDGET REVIEW
BURUNDI BUDGET TO BE FUNDED BY DONOR GRANTS AMOUNTING TO 51% OF THE TOTAL BUDGET
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The budget was presented by Hon. Hafsa Mosi (MP) atthe EALA Chambers, Arusha on the 19th May, 2011.Hon. Hafsa Mosi emphasized that the prospects of theCommunity have been encouraging. The Theme of thisyears budget is Implementation of the Common Marketand laying the foundation for a Monetary Union.
Hon. Hafsa Mosi highlighted that this year will witnessthe launch of the Common Market and also a rapidprocess towards the establishment of The East AfricanMonetary Union.
The EAC Statistical Database indicates the GDG of theregion has increased from USD 46.5 Billion to USD 74.5Billion over the period 2005 to 2009.
The Per Capita Income has also grown from USD 402 toUSD 571 over the same period.
The East Africa Legislative Assembly passed the budgetamounting to US$ 109,680,319 on 19
thMay, 2011. This
years budget exceeds the previous financial budget ofUS$ 77,664,443 by 41%.
According to the International Monetary Funds (IMF)latest report, the countries of EAC, in particular Rwanda,Tanzania and Uganda are among the fastest growingeconomies in the world.
The estimates presented for the financial year 20112012 have taken into account the strategic objectivesunder EAC Development Strategy (2011 2016) andalso the priorities that Council has set for the period.
The summary of the budget is as follows:Personnel Emoluments USD 20,672,338 (19%)Recurrent Expenditure USD 15,991,087 (15%)Development Expenditure USD 73,016,894 (67%)
Total USD 109,680,319 (100%)
The budget is financed as under:Contribution from Partner States USD 33,666,700
Development Partner Contributions USD 75,807,769Miscellaneous Income USD 205,850
Total USD 109,680,319
The Budget is allocated to the Organs/Institutions as under:East African Community Secretariat - USD 50,220,383East African Legislative Assembly - USD 11,679,682East African Court of Justice - USD 3,289,104Lake Victoria Basin Commission - USD 44,491,150
Total- USD 109,680,319
In line with the EAC Development Strategy 20112016,EAC will focus on the following priorities over next threefinancial years i.e. 2011 to 2014 as described in the tablegiven below.
Sr.No.
PRIORITY
Funds
Provided inBudget in
USD
1Implementation of EAC CommonMarket Protocol
10,274,605
2Conclusion of EAC MonetaryUnion Protocol
1,604,010
3Deepening co operation inDefense, Security and PoliticalMatters
1,634,135
4
Implementation of EACInstitutional ReviewRecommendations & CapacityBuilding
3,851,188
5Promotion of Agriculture, FoodSecurity & Implementation ofClimate Change Action Plan
604,260
6Promotion of Regional and Multi- lateral Trade
3,102,500
7Expansion of RegionalInfrastructure Facilities
9,423,390
8
Implementation of EACIndustrialization, InvestmentPromotion and Private SectorDevelopment Strategies
169,990
9
Promotion of Sustainable use ofEnvironment and NaturalResources, Tourism and WildlifeConversation
42,504,445
10 Enhancing EAC Visibility 1,564,190Total Funds Provided forPriority Sectors
74,732,713
EAC BUDGET REVIEW
RWANDA, TANZANIA & UGANDA AMONG FASTEST GROWING ECONOMIES IN THE WORLD - IMF
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