East Africa Partner States Budgets: National Expenditure on the Rise as Informal Sector Prepares for Tax-Frying Pan

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Financial year 2016/17 posts no smiles for the informal sector in East Africa as governments plan on tightening taxes in a bid to strengthen economic self reliance.

Finance Ministers from partner states preached growing self nations as they took to podiums in their respective houses of representatives. Nations have increased expenditures presumably to boost public service delivery in a bid to better lives as majority East Africans continue to live below the poverty line.

“Everybody must pay taxes, including the informal sector,…We must widen the tax net so that every eligible tax payer, including the informal sector, pays tax.” Kenya Treasury Cabinet Secretary Henry Rotich Said

Kenya, the region’s biggest economy, estimates to raise expenditure in the new financial year 28 percent to 2.3 trillion shillings ($22.8 billion), Rotich told lawmakers in a budget speech in Nairobi.

Tanzania estimates the expenditure growth of 31 percent to 29.5 trillion shillings ($13.5 billion),  Finance Minister Philip Mpango, said in the capital, Dodoma. This is the first budget in the government of frugal president John Magufuli.

Many East Africa economies have enjoyed positive spillover from the global slump in commodity prices as oil imports became cheaper while they don’t rely on exports from raw materials for a large part of government revenue.

The World Bank forecasts economic growth of 5 percent or more this year for Kenya, Tanzania, Uganda and Rwanda, which all presented budget plans on Wednesday.

Rotich’s budget speech proposed a new tool to collect revenue from hard-to-tax parts of the economy. The government wants lawmakers to grant the Kenya Revenue Authority powers to gather more information on taxpayers to be able to catch evaders.

In Uganda expenditure will increase by 6 percent to 26.4 trillion shillings ($7.9 billion) and the government targets revenue collection of 16 percent of national output in coming years from about 13 percent currently, Finance Minister Matia Kasaija said.

“The strategy for domestic revenue mobilization in the financial year 2016-17 is to expand the tax base by gradually formalizing the large informal sector, improving efficiency in tax collection and compliance,” Kasaija told lawmakers in Kampala.

Kigali is looking to technology to boost tax administration and revenue collection to finance its expenditure. in Rwanda’s bid to become self-reliant, the budget is projected to be supported by only 37.6% in foreign donations.

Finance Minister Claver Gatete proposing to purchase Electronic Billing Machines (EBMs) to bring all value added tax (VAT) eligible persons into the tax loop.

“For us to be able to know the number of taxpayers, we need accurate numbers of what is traded in comparison to production; that cannot only depend on responsible citizens who abide by tax laws. Therefore, if we distribute the machines to all VAT eligible businesses we will be able to capture accurate information of what is traded since the EBMs are linked with the revenue agency network,” he said.

Credit: Bloomberg