Two days after raising the issue of the Draft 2025 Budget Policy Statement, the National Treasury finally uploads it.

First, I see an issue here. The public has until Jan 21st, 2025 to make submissions on the document.

That's just 6 days to interact with the document & make submissions.

So what's new?

A short 🧵 Summary:

· M-Akiba bonds will likely be coming back in 2025/26
· Government has fleshed its road map for implementation of the Treasury Single Account
· Government has fleshed out its roadmap for implementation of the transition from cash to accrual accounting
· Mixed signals from the government regarding Supplementary Budget II 2024/25

Day 1 of Phase 2 of public participation on the Tax Laws (Amendment) Bill 2024 & Tax Procedures (Amendment) Bill 2024 kicked off.

Some issues that stood out for me from the submissions made so far.

A quick 🧵

The highlight of my day was RSM East Africa's proposal on amendments to the VAT registration threshold (currently Kes 5.0M).

They are proposing it be bumped up as follows:

· Kes 15.0M effective Jan 1st, 2025
· Kes 20.0M effective Jan 1st, 2026
· Kes 25.0M effective Jan 1st, 2027

Musings:

· RSM raises a very compelling point. If the idea behind TOT was to simplify compliance, a relatively low low VAT threshold negates the whole objective because compliance is fairly complex
· That said, the proposed revisions to the threshold are a tough ask to say the least. The MTRS itself envisions the revision from Kes 5.0M to Kes 8.0M

Four important bills have been made public:

· Business Laws (Amendment) Bill 2024
· Tax Laws (Amendment) Bill 2024
· Tax Procedures (Amendment)(No.2) Bill 2024
· Public Finance Management (Amendment)(No.4) Bill 2024

A 🧵


Summary:

· There's an aggressive widening of the 3rd Schedule of the Miscellaneous Fees & Levies Act, slapping the Export & Investment Promotion Levy on a wide array of products
· Worth pointing out that Organic surface-active products and preparations for washing the skin will now be slapped with Export & Investment Promotion Levy at 3.0% customs value
· eTIMS reverse invoicing is being introduced for any business whose annual turnover · There's some reclassification on the VAT side from zero-rated to exempt & from exempt to standard rated
· The VAT apportionment formula of 90/10 is being repealed
· The Employment Act is being amended to widen the definition of 'employee' to capture 'working either remotely or on site'
· The 2023/24 tax amnesty programme is being extended to June 30th, 2025. However, the base period remains unchanged at Dec31st, 2022
· GOK now wants a tighter leash on withholding tax agents. Penalty at 10.0% of the amount not withheld/remitted

The Supreme Court has set aside the Court of Appeal judgement by judges Kathurima M'Inoti, Agnes Kalekye Murgo & John Mativo which nullified Finance Act 2023.

I find the Supreme Court judgement to be a pretty informative read especially with regard to the question public participation & the sticky issues around what qualified for a meaningful exercise.

A 🧵 The question of whether an amendment is material or minor/technical was very key in this judgement.

· A material amendment makes adjustments necessary to implement proposed changes in policy. They modify existing rights, impose new obligations, or impose new duties or attach a new disability
· A minor/technical amendment merely clarifies/explains the existing law
· To further distinguish the two, the Supreme Court holds that an amendment is presumed to be substantive unless it is shown that only language improvements, meant solely to enhance drafting, were intended

Away from the impeachment & term limits, Sessional Paper No.4/2024 - Government Transport Policy, is out in Draft form.

I haven't seen an invitation for the public to submit comments but I suppose that will be coming any time now.

Considering how much the tax payer shoulders in financing government transport, this is an important document.

Key highlights, a🧵 First, what is the policy seeking to solve?

· GOK acknowledges that there's a huge problem with the cost borne by the tax payer in the management & maintenance of government assets
· Government transport alone cost the tax payer Kes 8.6 billion in 2021, Kes 9.7 billion in 2022 & Kes 14.3 billion in 2023

Justice Lawrence Mugambi's ruling on Petition No.E522/2024 referring the petitions challenging the impeachment of the Deputy President makes for an interesting read.

I strongly recommend it.

Some highlights:

· The ruling raises an issue around the sequencing of events in an impeachment process
· Should allegations that are the subject of impeachment be made public before or after public participation?
· Does making the allegations public before engaging in public participation & before the person accused formally defends themselves skew public perception?
· Justice Mugambi identifies this as a "substantial question arising out of the instant impeachment process"

1/6 · There is the question as to whether Standing Order 65 (procedure of removal of the Deputy President from office) provides ample room for meaningful public participation in the impeachment process
· Does the Standing Order actually provide for a framework to credibly authenticate the outcome of public participation process?
· Is the 7 days window provided actually sufficient for any meaningful public participation

2/6

The High Court has thrown out the Privatisation Act, 2023 on the grounds of being unconstitutional & therefore null & void.

Again, the question of public participation is at the core of this nullification.

It's an extremely huge development especially with regard to Kenya's ongoing US$3.6 billion programme with the International Monetary Fund (IMF).

Here's why.

A 🧵 State Owned Enterprises & their burden on the exchequer have been a huge issue under Kenya's current US$3.6 billion programme with the IMF.

· Privatisation of some of these entities has been a planned for but largely elusive benchmark under the programme
· If you check the latest report on the Kenya programme, the government committed to generate & submit to Parliament by end of Oct 2024 a report detailing a privatisation/divestment plan from a number of State Owned Enterprises

UPDATE: Finance Act 2023 Day 2 Hearing

The Supreme Court has concluded hearing on the appeal through which the National Assembly, the Office of the Attorney General and the CS Treasury are seeking reinstatement of the Finance Act 2023 following nullification by the Court of Appeal.

· The Supreme Court will deliver its Judgement on notice (meaning the apex court is not binding itself on a timeline within which it will deliver its judgement, we now just wait for a notice).
· If you missed my summary of highlights from day 1, see quoted 🧵 for details.

Key take away points from today below.

A 🧵 First, my take

This matter seems to be drilling down to a few questions:

· Does the judgement on Petition No.5/2017 British American Tobacco Kenya, PLC vs CS Ministry of Health & 2 others & the prescribed principles of public participation provide adequate framework for public participation in Kenya & if yes, did Finance Act 2023 adhere to this?
· Did the Court of Appeal in nullifying Finance Act 2023 contradict itself when compared to its judgement on Pevans East Africa Limited & Another vs. Chairman, Betting Control & Licensing Board & 7 Others?

Kenya's Tax Procedures (Amendment) Bill 2024 is out!

The proposed introduction of the parent Act introducing Sec37F is a huge one with regard to re-introducing the window for tax abandonment.

Some thoughts...

A 🧵 · Tax Procedures (Amendment) Bill 2024 is an indication that the government has opted to go for piece-meal amendments to tax laws as opposed to the tabling of an omnibus Tax Laws (Amendment) Bill 2024
· Not surprising at all given that the The Kenya Revenue Authority (Amendment) No.2 Bill of 2024 tabled on Aug 5th, 2024 by the Majority Leader already began the process of piece-meal tax laws amendments following the recession of Finance Bill 2024

Folks,

The Executive has received the green light to continue collecting taxes as par Finance Act 2023 amendment to tax laws.

This follows the securing of conservatory orders from the Supreme Court staying the Court of Appeal judgement that rendered Finance Act 2023 fundamentally flawed, unconstitutional, null & void (see quoted tweet).

Some pretty important pronouncements from the Supreme bench.

A 🧵 · I find it very interesting that one of the reasons that the appellants floated in defence of seeking stay orders is that revenue collection is at stake since the measures contained in Finance Bill 2024 cannot be re-introduced again on the floor of the House until the 6 months window lapses
· If this is the case, we shouldn't see any effort to resuscitate proposals contained in Finance Bill 2024 until January 2025

Supplementary Appropriations (No.2) Act, 2024 (i.e, Supplementary Budget I 2024/25) is finally available.

What are we seeing in the bill that President William Ruto signed into law?

Some quick take aways for me.

A 🧵

https://twitter.com/AmbokoJH/status/1823615017486258642

Aggregate changes:

· Total slash on the Executive stands at Kes 145,676,055,790
· There's a Kes 148,081,655,790 slash on recurrent & development spending & a Kes 2,405,600,000 increase in Appropriation in Aid
· The slash on recurrent spending is Kes 40,506,358,312; the slash on development spending is Kes 107,575,297,478
· Parliament's budget has been slashed by Kes 3.7 billion
· Judiciary's budget has been slashed by Kes 2.1 billion

Court of Appeal Judges Kathurima M'Inoti, Agnes Kalekye Murgo & John Mativo have ruled that Finance Act 2023 fundamentally flawed and therefore void & consequently unconstitutional.

2 key things:

· With Finance Act 2023 rendered unconstitutional, null & void, we revert to tax laws as last amended by Finance Act 2022
· I think this judgement is extremely consequential in determining how we conduct public participation on bills going forward

Here's what I think you need to know.

A 🧵 Summary:

· The entire Finance Act 2023 has been deemed unconstitutional, null & void
· Affordable Housing Levy has been salvaged by the Affordable Housing Act 2024. So the levy at 1.5% of gross matched by the employer remains in force
· Court of Appeal has overturned the High Court's decision that the 18 Sections introduced to Finance Bill on the floor of the House were constitutional. In effect, Court of Appeal says they failed to meet the threshold for public participation. This is huge!!
· Finance Act 2023 was subjected to adequate public participation but Parliament failed in the meeting the requirement for furnishing reasons why it accepts or rejects views from the public. This is huge!!
· The Court of Appeal has overturned the High Court decision regarding the inclusion of estimates of revenue & estimates of expenditure in the Appropriation Act. This is huge!!
· The Court of Appeal finds fault in the High Court's determination that it is not within its jurisdiction to intervene in policy matters
· The Court of Appeal declined to pronounce itself as to whether the increased taxes in Finance Act 2023 violated violates the economic, social and consumer rights. The bench argued that given that the Act is unconstitutional, there's no point in pronouncing itself on the matter
· Sec76 & Sec78 amending the Roads Act 1997 & Sec87 amending the Unclaimed Financial Assets Act have been deemed unconstitutional (i.e, Court of Appeal has upheld High Court decision)

Folks,

After the very long wait, the Public Debt Management Office has finally made public the External Debt Register as at June 30th, 2023.

It's a late release but hey, what are we seeing here?

Some thoughts. This is how outstanding external debt closed June 2023 (Change is y/y)

· Multilateral: +44.91% to Kes 2.65 trillion
· Commercial banks: +22.34% to Kes 1.29 trillion
· Bilateral: +11.40% to Kes 1.25 trillion

To make sense of this, look at how outstanding external debt closed June 2022 (Change is y/y):

· Multilateral: +16.77% to Kes 1.83 trillion
· Commercial Banks: +0.96% to Kes 1.05 trillion
· Bilateral: +4.99% to Kes 1.12 trillion

Musing?

· Kenya tried hard to lean more towards cheaper multilateral financing in 2022/23 but also ended up accelerating appetite for costly commercial bank financing

1/6

There's been a lot of talk about Kenya's US$3.6 billion programme with the IMF & the extent to which
it has been a catalyst for the present state of affairs.

Yesterday there was a pretty interesting forum set up by @IEAKenya & @DevEconNetwork taking stock of the programme with the fund which has been running since 2021 & whether as designed it was/is fit for purpose.

A 🧵 · The 2 think tanks argue that there's no doubt that in 2021 in the wake of the COVID19 wreckage on the economy, there was need for a programme with the fund
· What they argue, however, is that the fund misdiagnosed Kenya's situation & ended up handing the wrong prescription
· @retepelyod & @IEAKwame argue that the anchor of this misspecification was on the primary balance targets in the IMF programme (i.e, the difference between revenue collected & non-interest expenditure)

Folks,

The much awaited Supplementary Budget I 2024/25 has dropped.

Now that Finance Bill 2024 was withdrawn, focus has shifted to the much talked about budget rationalisation to align the 2024/25 spending plan with the downgraded revenue forecast.

The Supplementary Estimates have been transmitted to the Clerk of the National Assembly, see quoted tweet.

A 🧵 What are we seeing?

· The 2024/25 budget size is earmarked for a reduction to Kes 3.909 trillion (assuming Equitable Share remains unchanged). It will be just marginally above what we had for 2023/24 via Supplementary Budget II
· Following the Supplementary Budget I numbers, the 2024/25 budget deficit should be moderating to about Kes 850.14 billion, 4.69% of GDP
· Far less aggressive cuts than had been anticipated in Labour & Social Protection & Roads & Transport
· This 2024/25 Supplementary Programme Based Budget is unusually detailed! Very detailed indeed & we hope this will be the modus operandi going forward
· Save for a few areas, there's minimal departure between Supplementary Budget I 2024/25 rationalisation & the spending cuts Treasury had hinted at via the June 14th advisory to the Clerk of the National Assembly
· The 2024/25 development budget has taken quite a hit

The judgement from Justices Alfred Mabeya (Presiding), Robert Limo & Dr. Freda Mugambi on the Social Health Insurance Fund (SHIF) is one very interesting read.

The Petitioner is Joseph Enock Aura.

Here's a 🧵with key highlights from the judgement.

https://twitter.com/AmbokoJH/status/1811687338931614196

Verdict:

· The Social Health Insurance Act No.16/2023; the Primary Health Care Act No.13/2023 & the Digital Health Act No.15/2023 are suspended
· Parliament has been granted 120 days to undertake sensitization, adequate, reasonable, sufficient & inclusive public participation in accordance with the Constitution before enacting the said Acts
· Failure by Parliament to remedy the underlying legislation within the prescribed 120 days will see the Acts declared unconstitutional, null & void

Folks,

The East African Community Gazette on Common External Tariffs dated June 30th, 2024 is out.

This is a product of the East African Community's Council of Ministers & works to guide on the alignment of customs duty rates in the region.

Notable highlights.

A 🧵

Note - You'll see 35.0% a lot. It's because it's the customs duty rate for finished products. On rice, Kenya has stayed the EAC rate of 75.0% or US$ 345/MT, whichever is higher, & opted for the lower 35.0% or US$200.0/MT.

Reprieve for rice consumers.

Tonight, President William Ruto has said that 2024/25 borrowing will be at Kes 1.0 trillion following the decision to withdraw Finance Bill 2024.

This is huge & begs one question - are we still expecting Supplementary Appropriations Bill I 2024? Did the President mis-speak on the 2024/25 borrowing plan?

Some thoughts.

1/5 A deficit of a Kes 1.0 trillion essentially tells us that whereas we have downgraded the revenue numbers by shaving off Finance Bill 2024's Kes 346.7 billion, the expenditure side has remained as it was at Kes 4.065 trillion (net of redemptions)

By my math, the deficit figure (minus Finance Bill but retaining the expenditure as was) is actually at Kes 1,006,534,965,759.

So I see where the Kes 1.0 trillion comes from, only that it means the expenditure side remains untouched.

Are we still expecting Supplementary Appropriations Bill I 2024? I wonder

2/5

Kenya's contentious Finance Bill 2024 seeking to raise an additional Kes 346.7 billion worth of revenue in 2024/25 enters the last leg before adoption having sailed through the Committee of the Whole House in record time.

Yes - 195
No - 106
Spoiled - 3

Amendments commenced at about 10:23am & were done by about 12:23pm, it's unprecedented.

Here's a breakdown of the amendments passed.

A 🧵 First, some context.

In case you are lost as to what the proposed amendments being considered were, see quoted 🧵 below.

https://x.com/AmbokoJH/status/1805470868534870502

The National Treasury has written to the National Assembly Clerk warning that if the measures proposed in Finance Bill 2024 are not endorsed by the assembly, the country risks a Kes 200.0 billion revenue shortfall in 2024/25.

So now that we have the Appropriations Bill 2024, how would the indicated rationalisation impact proposed allocation?

A 🧵 Summary of indicated 2024/25 budget cuts:

· Energy: - 21.21%
· Labour & Social Protection: - 13.37%
· National Treasury: - 13.01%
· Industry, Trade & MSMEs: - 11.96%
· Agriculture: - 10.61%
· Judiciary: -8.12%
· Roads: - 7.57%
· Parliament: - 7.25%
· Education: - 4.76%
· Defence & Internal Security: - 4.67%
· Presidency: - 4.60%
· Health: - 3.59%
· Housing & Urban Development: - 2.40%

Folks,

The National Assembly Finance & Planning Committee's report on Finance Bill 2024 is finally out!

The report is quite loaded with wins, gains & quite a number of unclear areas where the Committee seemed to be giving mixed signals as to what its recommendation is.

Here's a 🧵on what I think we all need to take note of Summary:

· Motor Vehicle Tax may have gone but Road Maintenance Levy is going up 39.0% to Kes 25/litre
· Committee speaks of moving some Sep 1st, 2024 effective tax measures to August 1st, 2024. In short, the excise sting will be front-loaded
· Wins across Sec14 of the Excise Duty Act; VAT on financial services; KRA's exemption from Data Protection Act constraints; Advance Pricing Agreements
· The report gives mixed signals around Significant Economic Presence Tax & it's unclear what the position is
· Did the committee really understand the issue around the 60 days vs 90 days of agency notice objection? My reading is that either they didn't or simply mixed it up with the issue of invalidation
· Losses across withholding tax on infrastructure bonds; hiking of Import Declaration Fees; withholding tax on goods supplied to public entities; Kes 24,000 withholding tax threshold for professional services dropped
· Committee has retained the proposed doing away with the VAT apportionment threshold