East African governments in June presented their most ambitious budgets yet, which are expected to take effect this month, seeking to strengthen their economies, finance key government operations and repay existing debts.
However, despite a notable increase, economists are warning the region’s citizens to brace for tough times as the fiscal measures proposed in the 2023/24 budgets show little to no signs of further lowering the cost of living and some measures causing investor flight in the region’s biggest economies.
Kenya, the region’s biggest economy, has proposed a $26.3 billion spending plan, while Tanzania has a $19.2 billion budget.
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The Democratic Republic of Congo (DR Congo) is planning to spend $16 billion, Uganda $13.9 billion, Rwanda $4.7 billion, Burundi $1.5 billion and South Sudan $1.4 billion.
According to Riva Jalipa, Taxation Advisor at Amnesty International, the recent budgets were unveiled at a time when households were struggling to make ends meet. She was speaking in a Twitter Space organized by The East African news paper.
The current situation, Jalipa said, is attributed in large part to the polycrisis of the Covid-19 pandemic and the Russia-Ukraine crisis, which have both raised the cost of living in the region.
"The biggest budget items in Uganda and Kenya are debt servicing, more than half of the revenues are used for debt servicing. That in itself is a problem and it means you have to scale down on expenditure which means you will have little to spend on citizens, and that makes the cost of living higher and their socio safety net is smaller, making them less protected from the current shocks we are going through,” she said.
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Jalipa added that not much had been done to lower the cost of living, citing that, "In some sectors we are doing well for instance on health and education, but we have also decreased allocations for social protection, meaning that the beneficiarie’s cost of living is much higher.”
"If we are trying to improve the well being of people we have to spend more on social sectors.”
For Alex Mapaunda, Tax Advisor at Deloitte based in Tanzania, there is hope provided that consumptive expenditures have been maintained.
"We have not seen taxes on consumptive expenditures that households are associated with. The things that we use in day to day households, most of these budgets have kept them constant, apart from a few selected items.”
"That position gives me hope that the finance ministers will be cognizant that all these households are recovering from job losses and all these shocks that they have been through, so it shows that they were very sensitive to the cost of living.”
Meanwhile, Mapunda pointed out, the budgets have also highlighted the pursuit of supporting economic recovery in respective countries.
"We have been seeing growth rates of three percent and four percent but now countries are shooting for six percent to seven percent, for this year.”
Kigali the "big winner”
In Rwanda, the government proposed increased spending by six percent to Rwf5.03 trillion ($4.4 billion), from Rwf4.7 trillion ($4.1 billion) in the previous fiscal year.
The government plans to finance 63 percent of its budget from domestic revenue while external loans will constitute 24 percent and external grants 13 percent.
Rwanda also announced a 10 percent increase in customs duty on imported construction materials, including metal tubes, doors, windows, and their frames.
Wheelbarrows, plastic bags, and cloth bags will also face a 35 percent import duty.
Import duty for second-hand clothes will remain at $2.5 per kilogramme, while second-hand shoes will be taxed at $5 per kilo.
Under the EAC Customs act, import duty on second-hand clothes and shoes is $0.4 per kilogramme.
Victor Omuringa, the Associate Director at PwC Rwanda, argues that under the new budget Rwanda has "the most prospective business environment.”
"I see Rwanda winning really because we have the government positioning itself as an investment destination, particularly foreign investments. The new budget has a bit on protecting local business and also the goal of attracting more foreign businesses.”
According to Omuringa, there are a number of measures being taken in Rwanda to support foreign investments.
For instance, Kenya, the region’s biggest economy, is increasing Pay As You Earn rates, while Kigali is lowering that.
"When you look at the Kigali International Financial Centre (KIFC), given the kind of talent and expertise it is bringing in the country, some expatriates are exempted to pay for the PAYE in the first five years.”
"By and large the country is trying to lower the tax rates, encourage more compliance, and then increase investments for foreign investors.”
Equally important, Omuringa said, is the intention to widen the tax base, and reduce Corporate Income Tax rates.
"The idea is to try and push the people who earn less to have more disposable income for people to afford basic needs but at the same time also try to make it more equitable for the people who are earning more and in that sense then attract those foreign people who would want to set up their businesses in Rwanda and actually even service the region from Rwanda.”
"So contrary to what big economies are doing, Rwanda is on the other hand saying that if you are going to chase away those investors then we are ready to welcome and give you a good business environment.”