Kenya will ask for more cash from its wealthy citizens through a capital
gains tax while Uganda will increase taxes to make up for falling donor
support, the finance ministers of both
states said in budget speeches.
East African states have attracted higher
foreign investments in recent years due to robust economic growth rates, but
decades of bad management of public resources have left them struggling with
rampant poverty and unemployment among citizens.
Henry Rotich, the Kenyan cabinet secretary
for the national Treasury or finance minister, on Thursday said the government
plans to enforce capital gains tax to boost revenue.
"This will allow wealthier members of
our society to also make a token contribution toward our national development
agenda," he told lawmakers in his budget speech for the 2013/14
(July-June) fiscal year.
In the budget, the minister set the fiscal
deficit at 7.9 percent of the gross domestic product or 329.7 billion shillings
($3.86 billion), slightly higher than markets
expected.
He said the gap would be filled by net
foreign financing of 223 billion shillings and 106.7 billion net borrowing from
the domestic market.
Analysts said the deficit was on the higher
side of expectations, adding that it had the potential of supporting the
shilling currency at the expense of economic growth.
"The deficit financing requirement will
likely lead to interest rates being higher than they would otherwise be, which
will constrain private sector growth," said Angus Downie, head of economic
research at Ecobank.
Rotich said he expected inflation to remain
within the government's target of 5-7 percent, amid stable lending and foreign
exchange rates.
"VERY
UNFORTUNATE"
In Uganda, Finance Minister Maria Kiwanuka
was forced to impose new taxes on telephony, petroleum products and financial
services, by the withholding of budgetary support by donors over claims of
corruption in the government.
"There is a need to examine
non-traditional sources of financing in light of declining budget
support," she told parliament.
Stephen Kaboyo, the managing director of
Alpha Capital Partners, said the minister should have explored the possibility
of borrowing funds from international debt markets,
to plug a 3.6 trillion shillings ($1.4 billion) deficit.
"Heavy reliance on domestic borrowing
potentially crowds out the private sector through increased interest rates and
high debt service costs," Kaboyo said.
Out in the streets of the capital Kampala,
residents expressed anger at the budget, especially the taxes.
"It's very unfortunate that Ugandans are
being squeezed both ways," Simon Mpagi, a 27-year old mobile phone-based
money transfer agent, told Reuters from his retail
shop in Kampala.
"They steal our taxes and donor money...
leaving public services to near-collapse and now when donors get angry and cut
them off, then they come to us and punish us again by raising taxes to grab
even the little income we struggle to make."
In Tanzania, Finance Minister William Mgimwa
raised spending by 21 percent to 18.25 trillion shillings ($11.13 billion)
while maintaining the deficit at 5 percent of the annual economy.
Rwanda raised its spending by 6.6 percent to
1,653 billion francs ($2.6 billion) and said it will introduce a new loyalty
tax on minerals. ($1 = 2595.0000 Ugandan shillings) ($1 = 1639.0000 Tanzanian
shillings) (Additional reporting by Elias Biryabarema in Kampala, Fumbuka
Ng'wanakilala in Dodoma, Jenny Clover in Kigali and Kevin Mwanza in Nairobi;
Writing by Duncan Miriri; Editing by James Macharia; editing by Ron Askew)
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