National Treasury Cabinet Secretary Ukur Yatani

Prepare for tough times with higher monthly income tax and increase in food and fuel prices in 2021 the relief declared by President Uhuru Kenyatta comes to an end next month.

National Treasury Cabinet Secretary Ukur Yatani on Wednesday said the monthly Pay-As-You-Earn (PAYE) deducted from salaried workers will return to 30 per cent from 25 per cent in January.

The state reduced PAYE to cushion workers from the economic impacts of the global pandemic.

The government set to revert Value Added Tax (VAT) to 16 per cent from current 14 per cent, meaning the prices of fuel, food, drugs and other basic commodities will go up.

Companies will go back to paying corporate tax at the 30 per cent rate from the current 25.

Mr Yatani said the move is to increase the country’s revenue.

“The government will continue to evaluate the prevailing economic situation and institute measures that ensure we protect lives and livelihoods while upholding a stable macroeconomic environment,” CS Yatani announced after launching public sector hearings on the 2021/22 financial year budget in Nairobi.

An increase in taxes comes with a rise in the cost of basic goods and services, meaning disposable incomes will fall.

Also to be discarded is the provision that saw those earning less than 24,000 exempted from taxes.

The CS added that the government will decide in January on whether to join the controversial International Monetary Fund (IMF) support programme.

He asked government ministries, departments and other agencies to prepare themselves for tough times, adding their budgets will be cropped to reflect practical forecasts.

“Considering the tight resource envelop, sectors are required to examine their proposed budgets and ensure strict adherence. We have heard of cases where accounting officers and senior staff manipulate budgets. That will not be entertained,” he said.

Noting that Kenya’s economic ground remains rough, Mr Yatani said the government plans to limit borrowing.

He said the 2021/22 budget deficit would be filled through net external financing of 3.2 per cent of GDP and net domestic financing of 3.8 per cent of GDP.

“It’s not going to be easy because we have been hit by a shock not experienced before: the pandemic, the expenditure pressures and the low revenue performance. There will be limited scope for borrowing. Our only option is to reduce expenditure,” he said.

“We are going to rein in on ministries, departments, agencies, State corporations and county governments on pending bills,” he said.

Mr Yatani added that the government began experiencing pressures to deliver on its promises even before the pandemic.

“We have not achieved sustainable financing of critical development programmes because of the pandemic,” he said.

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