Kenya National Treasury and Planning, "Budget Statement FY 2021/22" (June 10, 2021)
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Budget Statement for FY 2021/22 of the National Treasury and Planning of Kenya, delivered to the National Assembly on 10th June, 2021 by Hon. (Amb.) Ukur Yatani, Cabinet Secretary, under the theme "Building Back Better." The statement says concerns raised during consultation centered on COVID-19 and its containment measures, and describes a reduction of the Central Bank Rate from 8.25 to 7.0 percent. It proposes to allocate Ksh 14.3 billion in FY 2021/22 for vaccine roll-out, in addition to Ksh 7.6 billion appropriated in the current Budget, and notes that about one million persons had received the first COVID vaccine dose as at end May, 2021. It cites over 100,000 job opportunities for the youth under the "Kazi Mtaani" initiative.
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“Kenya National Treasury and Planning, ‘Budget Statement FY 2021/22’ (June 10, 2021).”
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The National Treasury and Planning
P.O. Box 30007- 00100,
Nairobi, Kenya
Tel: +254202252299
Email: info@treasury.go.ke
www.treasury.go.ke
BUDGET
STATEMENT
FY 2021/22
Theme: “Building Back Better: Strategy for
Resilient and Sustainable Economic
Recovery and Inclusive Growth”
1
STATEMENT DELIVERED TO THE NATIONAL
ASSEMBLY ON 10TH JUNE, 2021 BY HON. (AMB.)
UKUR YATANI, EGH, CABINET SECRETARY FOR THE
NATIONAL TREASURY AND PLANNING, REPUBLIC
OF KENYA, WHILE HIGHLIGHTING THE BUDGET
POLICY AND REVENUE RAISING MEASURES FOR
THE FINANCIAL YEAR 2021/22
1ST JULY 2021 TO 30TH JUNE, 2022
© Budget Statement 2021
To obtain copies of this statement, please contact:
The National Treasury and Planning
Treasury Building
P. O. Box 30007-00100
NAIROBI, KENYA
Tel: +254-20-2252-299
Fax: +254-20-341-082
The statement is available on: www.treasury.go.ke
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I. INTRODUCTION
Overview and Background
1. Mr. Speaker, it is once again a privilege for me to
present to this Honourable House and to the people
of Kenya highlights of the budget policy and the
revenue raising measures for the financial year 2021/22.
This Statement is in fulfillment of the requirements of
Section 40 of the Public Finance Management Act and
the Standing Order Number 241 of the National
Assembly. I do this in performing my fiduciary duty to
Kenyans.
2. Before I proceed with the rest of the Statement, Mr.
Speaker, allow me to state that during the preparation
of this Budget, I had very fruitful engagements with
diverse stakeholders and received valuable feedback.
The breadth of the stakeholders spanned from
Government Ministries, Departments and
Agencies, County Governments, Committees of
this House, Development Partners, Private Sector
3
and Kenyans from all walks of life. I extend my
sincere gratitude to them for their views and useful
suggestions which informed the priorities of this Budget.
3. Mr. Speaker, pressing concerns raised by Kenyans
during the consultation process revolved around the
impact of COVID-19 and its containment measures.
Kenyans were concerned about the high cost of
COVID-19 treatment and availability of vaccines in
addition to food security, high cost of living and
unemployment levels among the youth. In addition,
Kenyans raised concerns about the general levels of
poverty and inequality as well as the increased
public debt. Mr. Speaker, at the outset, I wish to
assure Kenyans that these concerns have been
considered and I will be elaborating specific
interventions later in this Statement.
4. Mr. Speaker, as you recall, following the outbreak
of the COVID-19 Pandemic in March last year, the
Government instituted containment measures to curb
the spread of the virus and save lives. To cushion
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Kenyans and businesses, the Government rolled out
specific fiscal interventions including reduction of Pay As
You Earn and corporate tax rates from 30 to 25 percent,
Value Added Tax from 16 to 14 percent, and turnover
tax from 3 to 1 percent. The Government also offered
100 percent tax relief to Kenyans earning below Ksh
24,000 per month. In addition, the Government
enhanced cash transfer allocations to the vulnerable
segment of our society including the emerging urban
vulnerable.
5. Mr. Speaker, the Government further implemented
various monetary policy measures to enhance access to
credit by the private sector. This included reduction of
the Central Bank Rate from 8.25 to 7.0 percent and
lowering of the Cash Reserve Ratio from 5.25 to 4.25
percent thereby injecting an additional Ksh 35.0
billion to the money market. Further, during this period,
commercial banks were allowed flexibility with regard to
the requirements for loan classification and provisioning.
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6. Mr. Speaker, to spur economic activities in the
country, the Government implemented a comprehensive
Economic Stimulus Programme targeting activities in
infrastructure, education, health, business liquidity,
agriculture and food security, tourism, manufacturing,
environment, water and sanitation.
7. Mr. Speaker, inspite of these interventions, a lot
remains to be done in order to deal with the challenges
of unemployment among our youth as well as high
poverty and income inequality levels that have been
aggravated by the COVID-19 Pandemic. Our rallying call
in this year’s budget is therefore, job creation through
continued and sustained economic growth. To
strengthen this position, we shall implement an
comprehensive Economic Recovery Strategy that will
expand economic activities and address these
challenges.
8. Mr. Speaker, the private sector remains key to
employment creation and poverty reduction in the
country. In order to expand the scope and pace of policy
6
interventions and enhance access to credit by
businesses, the Government established the Credit
Guarantee Scheme to de-risk lending to the Micro, Small
and Medium Enterprises.
9. Mr. Speaker, the plight of the vulnerable in our
society, particularly the emerging urban vulnerable,
remains a key concern for our Government. In order to
cushion this particular group, the Government will
enhance cash transfer allocations and institute other
targeted interventions in this Budget.
10. Mr. Speaker, the COVID-19 Pandemic has
triggered one of the worst health and economic crisis of
our time. The Pandemic overstretched our health
systems, and in line with the advisory of the World
Health Organization, the Government implemented
appropriate interventions to save lives. The response
has undoubtedly strengthened our health care system
through provision of necessary medical supplies,
installation of modern equipment, and deployment of
more health personnel.
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11. In addition, in March 2021, the Government
launched the National COVID-19 vaccination programme
initially targeting the frontline workers and other highly
vulnerable groups. As at end May, 2021, about one
million persons had received the first COVID vaccine
dose. In order to facilitate further roll-out of vaccines to
create herd immunity, we propose to allocate Ksh 14.3
billion in the FY 2021/22. This is in addition to the Ksh
7.6 billion appropriated in the current Budget. Mr.
Speaker, to enhance access to affordable medicine and
equipment for management of COVID-19 and other
chronic diseases, I will later in this Statement, be
proposing tax relief measures on various pharmaceutical
products and medical equipment.
12. Mr. Speaker, the containment measures instituted
by the Government to stem the spread of the virus and
save lives, adversely affected economic activities and
revenue performance. To stimulate economic activities
and enhance Government’s ability to respond, we
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prioritized health and social expenditures and
formulated an economic recovery program targeted at:
▪ First, enhancing our ability to respond to the COVID-
19 Pandemic;
▪ Second, reducing debt vulnerabilities through a
revenue-driven fiscal consolidation with a view to
stabilizing debt to GDP ratio over the medium term;
▪ Third, implementing targeted policy, legal and
institutional reforms while at the same time
addressing vulnerabilities in the State-Owned
Enterprises worsened by the COVID-19 Pandemic;
and,
▪ Fourth, strengthening the monetary policy
framework and financial stability.
13. Mr. Speaker, under this Program, we plan to
reduce the level of fiscal deficit from 8.7 percent of
GDP in the current Budget to 7.5 percent of GDP in
the FY 2021/22 and further to 3.6 percent of GDP in
the FY 2024/25. This will be a 5.1 percent reduction in
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fiscal deficit over the next 4 years, thereby slowing the
annual growth of debt.
14. Upon our request, this economic recovery
programme is supported by multilateral and bilateral
development partners with the International Monetary
Fund providing financial resources amounting to US
dollar 2.34 billion over the next three years.
15. Further, Mr. Speaker, in response to the COVID-19
Pandemic, the G-20 countries extended support to
developing countries by offering debt service suspension
under the G-20 Debt Service Suspension Initiative
Framework. The fiscal space created under this Initiative
is to increase social, health and economic spending in
response to the COVID-19 crisis. Kenya has benefited
from this initiative through expansion of health and
social services.
16. Additionally, Mr. Speaker, Kenya welcomes the
initiatives under the recent French - African Summit that
agreed to, among others, increase funding through the
IMF’s Special Drawing Rights to African States to support
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economic recovery; extension of the G-20 debt service
suspension and facilitate manufacture of vaccines in
Africa.
17. Mr. Speaker, I will now highlight the economic
policy context in which this Budget has been prepared.
II. ECONOMIC POLICY CONTEXT
Global Economy
18. Mr. Speaker, this year’s Budget has been prepared
against a background of projected global economic
recovery. This is despite the emergence of COVID-19
variants occasioning re-introduction of containment
measures to further stem spread of the virus.
19. The projected recovery reflects additional fiscal
support in a few large economies and monetary easing
that further uplifts the economic outlook. This outlook is
further supported by the ongoing vaccinations which is
expected to pick up in the second half of 2021. In this
regard, Mr. Speaker, the global economy is projected
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to grow by 6.0 percent in 2021, from a contraction of
3.3 percent in 2020.
20. Mr. Speaker, closer home, due to improved
exports and commodity prices, economic growth in the
sub-Saharan Africa region is projected to expand by 3.4
percent in 2021 from a contraction of 1.9 percent in
2020. This growth will also be supported by a recovery
in both private consumption and investment as
economies re-open.
Domestic Economy
21. Mr. Speaker, like the rest of the world, our
economy was not spared from the adverse impact of the
Pandemic. In addition, the Kenyan economy experienced
two other shocks; one, the invasion of desert locusts
that damaged crops, and two, floods that caused loss of
lives and livelihoods, displacement of people and
destruction of infrastructure.
22. Given the impact of these shocks, economic growth
for 2020 declined to 0.6 percent from 5.4 percent in
12
2019. Mr. Speaker, economic growth is expected to
rebound to 6.6 percent in 2021. This recovery reflects
the lower base of 2020 when most service sectors were
adversely affected by the closure of the economy
recording negative growths. The outlook in 2021 will be
reinforced by the prevailing stable macroeconomic
environment and the ongoing implementation of the
strategic priorities of the Government under the “Big
Four” Agenda and Economic Recovery Strategy. Weather
conditions are expected to be favourable supporting
agricultural output. As a result, export of goods and
services will expand as global demand normalises. Over
the medium term, the economy is expected to remain
resilient and grow at a rate above 6.1 percent.
23. Mr. Speaker, this growth outlook is affirmed by
recent surveys by the Monetary Policy Committee
revealing a general optimism about economic growth
prospects. In addition, the recent IMF Mission to Kenya
noted that economic recovery is under way and
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estimates economic growth consistent with our
projections.
24. Mr. Speaker, to support this growth outlook, we
shall continue to maintain macroeconomic stability.
Inflation which stood at 5.9 percent in May 2021, is
expected to remain within target range of 5.0 percent
with a margin of 2.5 on either side, supported by
prudent fiscal and monetary policies. Interest rates will
be expected to remain low and stable supporting growth
of private sector credit.
25. The balance of payments is also expected to be
strong with the current account balance projected to
remain at 5.2 percent of GDP. Further, the rebound in
horticulture and tea exports as well as increased inflows
of remittances will support build-up of adequate levels
of official foreign exchange reserves creating buffers
against short-term shocks in the foreign exchange
market.
26. Mr. Speaker, the aforementioned economic
outlook may be affected by emerging domestic and
14
external risks. The emergence of new COVID-19 variants
could lead to reinstatement of containment measures
disrupting, among others, trade and tourism.
27. In addition, Mr. Speaker, adverse weather
conditions could lead to lower agricultural output.
Further, increased public expenditure pressures,
particularly wage demands could put a strain to the fiscal
space.
28. Mr. Speaker, the Government will continue to
monitor these developments and take appropriate policy
interventions to safeguard the economy were the risks
to materialize.
Theme for FY 2021/22 Budget
29. Mr. Speaker, having outlined the economic policy
context for this Budget, we have carefully reflected on a
theme that would resonate with our strategies to protect
lives and livelihoods during this period of COVID-19,
cushion the vulnerable and support economic recovery
for employment creation and poverty reduction. In this
15
respect, we have framed the theme for this Budget as
“Building Back Better: Strategy for Resilient and
Sustainable Economic Recovery and Inclusive
Growth.”
30. Mr. Speaker, the next section of my Statement will
give highlights of the policy priorities of the Government
and the strategy for economic recovery. I will later
provide highlights of the fiscal framework underpinning
this Budget, spending priorities and the proposed tax
policy measures.
III.POLICY PRIORITIES OF THE
GOVERNMENT AND STRATEGY FOR
ECONOMIC RECOVERY
31. Mr. Speaker, the implementation of “Big Four”
Agenda remains a high priority and critical to economic
recovery. In this regard, the Government will fast track
implementation of programs and projects under the “Big
Four” Agenda to enhance food and nutrition security;
achieve universal healthcare; provide affordable
16
housing; and support growth of manufacturing sector for
job creation.
32. Mr. Speaker, the Government will also undertake
the following targeted strategic interventions to achieve
a resilient and sustainable economic recovery:
▪ First, maintain macroeconomic stability and
enhance security to foster a secure and conducive
business environment and security of Kenyans and
their properties;
▪ Second, scale up development of critical
infrastructure in the country such as roads, rail,
energy and water to reduce the cost of doing
business and ease movement of people and goods
as well as promote competitiveness;
▪ Third, enhance investment in key economic
sectors for broad based sustainable recovery by
promoting agricultural transformation, growth in
manufacturing, environmental conservation and
water supply, stimulating tourism recovery, and
sustainable land use and management;
17
▪ Fourth, expand access to quality social services in
health, education and appropriate social safety nets
for the vulnerable population;
▪ Fifth, support the youth, women and persons
living with disability through Government funded
empowerment programs that leverages on
partnerships with private sector organizations;
▪ Sixth, support County Governments through
transfer of sharable revenues to strengthen their
systems and capacity in service delivery; and
▪ Lastly, implement various policy, legal and
institutional reforms to enhance efficiency of public
service delivery.
Economic Stimulus Programme
33. Mr. Speaker, following the outbreak of the
Pandemic, we implemented the Economic Stimulus
Programme to support economic activities and mitigate
the adverse impact of the Pandemic on Kenyans and
businesses. The achievements of the Programme
include:
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▪ One, creation of over 100,000 job opportunities for
the youth under the “Kazi Mtaani” initiative and
5,500 community scouts in wildlife conservation
areas across the 47 counties;
▪ Two, improvement of education outcome through
construction of additional classrooms in secondary
schools, procurement of locally fabricated desks for
both primary and secondary schools and
recruitment of 4,000 and 8,000 primary and
secondary school intern teachers, respectively;
▪ Three, enhancement of healthcare system capacity
by recruiting 5,000 diploma and certificate level
healthcare workers for one year under the Universal
Health Coverage;
▪ Four, enhancement of liquidity to businesses
through payment of VAT refunds of Ksh 10.0
billion and clearance of pending bills of Ksh 13.1
billion;
▪ Five, de-risking of lending to Micro, Small and
Medium Enterprises by providing Ksh 3.0 billion to
the Credit Guarantee Scheme as a seed capital; and
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▪ Six, cushioning the vulnerable particularly, the
emerging urban vulnerable with an additional Ksh
10.0 billion to the cash transfer programme.
34. Mr. Speaker, building on the success of the
aforementioned interventions, the Government is now
set to implement an elaborate Economic Recovery
Strategy that aims to reposition the economy on an
inclusive and sustainable growth trajectory.
35. This Strategy seeks to enhance resource
mobilization to ensure sustainable funding of our
development programmes from diverse sources
including Public Private Partnership and lease financing.
The Strategy will also support the role of the private
sector in the economy and further facilitate credit access
by Micro, Small and Medium Enterprises through the
Credit Guarantee Scheme.
36. Under the Strategy, the Government will upscale
investment in ICT and digital infrastructure in order to
facilitate e-commerce and efficient delivery of public
services. The Government shall also promote local
20
production processes and domestic supply value chains
and strengthen social-protection through targeted policy
interventions and programmes.
37. Mr. Speaker, undoubtedly, successful
implementation of this Strategy will enable us realize the
aspired economic growth, create employment and
narrow income inequalities. I will later in this Statement,
propose budget allocations to the Government priority
areas.
Socio-Economic Achievements
38. Mr. Speaker, besides the achievements under the
Economic Stimulus Program, the on-going key strategic
investments of Government as well as sustained policy
reforms over the years have greatly transformed the
economy and improved the welfare of Kenyans. Mr.
Speaker, I will now highlight some of the key
achievements realized from these investments and
reforms:
21
Macroeconomic Policy Developments
39. Mr. Speaker, at the macroeconomic level, our
prudent fiscal, monetary and financial policies have
resulted into:
▪ First, strong economic growth that averaged 5.6
percent between 2013 and 2019. However, the
onset of the COVID-19 Pandemic slowed growth in
2020. The GDP per capita increased by an
impressive 80.4 percent from Ksh 113,000 in
2013 to Ksh 204,000 in 2019. New jobs created by
both the formal and informal sector increased by 12
percent from 755,000 in 2013 to 846,000 in
2019;
▪ Second, inflation rate has remained within target
range averaging 6.1 percent;
▪ Third, interest rates have declined while credit to
the private sector increased. Lending rate declined
from 17.3 percent in 2013 to 12.0 percent in
2020 while the Central Bank Rate declined from 8.5
percent in 2013 to 7.0 percent in 2020. As a
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result, credit to the private sector increased from
Ksh 1.5 trillion in 2013 to Ksh 2.8 trillion in
2020;
▪ Fourth, the current account deficit improved
from 8.8 percent of GDP in 2013 to 4.7 percent
of GDP in 2020 supporting the stability of the foreign
exchange market; and
▪ Fifth, revenue collection including Appropriation-
in-Aid doubled from Ksh 900 billion in the FY
2013/14 to an estimated Ksh 1.8 trillion in the FY
2020/21.
Expansion and Development of
Infrastructure
40. Mr. Speaker, our investment in the expansion of
road networks, railways, seaports, airports and energy
has enhanced domestic and regional connectivity,
boosted rural productivity and reduced urban
congestion. These investments include:
▪ One, the Standard Gauge Railway and urban
commuter rail in Nairobi; the on-going rehabilitation
23
of meter gauge railway lines along various routes
including Nairobi-Nanyuki, and Nakuru-Kisumu-
Butere;
▪ Two, the recently launched first berth in Lamu
Port as a critical pillar of the LAPSSET corridor. Our
current focus is to make Lamu a free port for both
domestic and trans-shipment purposes. In addition,
the Government is establishing a disease-free zone
in Lamu to support export of live animals and
processed meat;
▪ Three, the rehabilitation and subsequent use of
Kisumu port will enhance efficiency in regional
trade; and
▪ Four, expansion in energy generation and
connectivity with over 7.5 million households today
connected to electricity compared to 2.3 million
households in 2013.
41. Mr. Speaker, the Government has provided various
incentives at our ports including exempting the fuel
supplied to the shipping lines from import and excise
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duty, VAT as well as railway development levy and
import declaration fees. To further attract more ships to
our ports, particularly to the recently launched Lamu
Port, the Government will review the arrangements on
fuelling by vessels calling at the Kenya Ports with a view
to allowing ship to ship refuelling and establishment of
fuel bunker facilities.
Recent investments and reforms in the
agricultural sector
42. Mr. Speaker, in addition to the various reforms in
the agricultural sector, we focused on the livestock
sector by reviving the Kenya Meat Commission. We shall
set up a meat processing plant in Lamu to provide ready
market for livestock, increase income to farmers and
enhance the meat value chain.
43. Mr. Speaker, we also focused on increasing fish
production by refurbishing Liwatoni Fishing complex and
setting up a new fish processing plant in Lamu. This will
promote exports and increase incomes for the local
fishermen.
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44. Mr. Speaker, in order to improve access to land as
a factor for development, we have stepped up
investment in the sector and rolled out ambitious
national program of Land Titling and digitization of land
records.
Tea and Coffee Sub-Sectors
45. Mr. Speaker, tea and coffee sub-sectors provide
livelihoods to millions of Kenyans. Despite its
contribution to foreign exchange earnings, the returns
to farmers have been declining due to low productivity,
high input costs, low levels of value addition and weak
regulatory and institutional framework. Under the
ongoing reforms in the coffee and tea sectors, I will be
proposing further measures to enhance competitiveness
of these sub-sectors.
Manufacturing Sector
46. With regard to manufacturing, Mr. Speaker, the
Government has revived and transformed textile,
leather and automobile industries, which have in turn
created jobs for our youth. The full operationalization of
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Special Economic Zones in Dongo Kundu, Naivasha and
Kisumu will support local industrial activities and unlock
additional employment opportunities.
Local Assembly of Motor vehicle and
Motorcycles
47. Mr. Speaker, the Government over the years has
supported local assembly of motor vehicles and motor
cycles by providing various tax incentives. These include
removal of excise duty on locally assembled motor
vehicles, duty-free importation of Completely Knocked
Down kits and reduced corporate tax from 30 to 15
percent for the first five years of operation. I am pleased
to note that the industry has responded positively to
these interventions and to date, we have approved
thirteen motor vehicle and seventeen motor cycle
assemblers. These local assemblers have created
employment opportunities while also saving the country
substantial foreign exchange.
48. Mr. Speaker, whereas, assembly of commercial
vehicles have registered tremendous growth, the
27
passenger category of motor vehicles remains under-
developed. This category is still dominated by imported
used vehicles comprising over 70 percent of passenger
vehicles, which is largely attributed to the high cost of
assembly. In this regard, the Government is working on
a framework to support the assembly of affordable
passenger vehicles.
49. Further, the Government in consultations with
stakeholders is in the final stages of instituting
comprehensive policy and administrative reforms to fully
entrench local assembly of motor vehicles and motor
cycles.
Policy, Legal and Institutional Reforms
50. Mr. Speaker, while we have made tremendous
progress as a nation, we remain alive to structural
constraints that impede the pace of economic
development. Aware that a resilient and sustainable
economic recovery is indeed predicated on timely
implementation of appropriate policy, legal and
institutional reforms, I propose the following
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interventions to improve the business environment,
increase efficiency in public service delivery and
strengthen accountability and transparency in public
finance management.
Procurement Reforms
51. On procurement, Mr. Speaker, this House
approved the Public Procurement and Asset Disposal
Regulations 2020, that came into effect in July 2020.
With these Regulations, it is now easier for procuring
entities to meet the specified requirements of bilateral
and multilateral agreements on technology and
knowledge transfer, local content and employment
quotas among others. For smooth implementation of the
Regulations, we have conducted capacity building in all
47 counties. I therefore direct all Procuring Entities to
fully comply with these Regulations.
52. Mr. Speaker, in order to ensure efficiency in the
procurement process and facilitate access by Micro,
Small and Medium Enterprises, the Government has
reviewed the consolidation policy on the procurement of
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ICT equipment and related services. In this regard,
procurement of ICT equipment and related services will
be decentralized to various Ministries, Departments and
Agencies with effect from 1st July, 2021.
E- Government Procurement
53. Mr. Speaker, last year, we began the process of
automating public procurement through an end-to-end
electronic procurement system. So far, we have
developed an implementation strategy that re-engineers
all public procurement processes, including functional
and technical requirements. In order to actualize this
initiative, 31st December, 2021 will be the final date for
rolling out the electronic Government procurement
system and discontinuation of the manual procurement
processes. In this regard, the Government will realize
savings as a result of greater efficiency, reduced
operational costs, enhanced transparency and
accountability through increased bidder participation.
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Framework Contracting
54. Mr. Speaker, to support our local contractors
undertake construction of infrastructural projects, we
have proposed changes to the contracting framework
through the Public Procurement and Asset Disposal
(Amendment) Bill, 2020. The Bill before this House,
proposes among others, to allow award of a contract to
multiple bidders. This will indeed support local firms and
accelerate the delivery of services.
State Corporations Reforms
55. Mr. Speaker, given the prevailing business
environment due to the adverse impact of COVID-19
Pandemic, there’s an urgent need to evaluate the
financial position and governance of key State
Corporations and institutions. It is in this respect that
the Government is exploring targeted reforms to
strengthen these institutions, including Public
Universities.
56. Mr. Speaker, in the interim, the Government
provided financial support to strategic institutions
31
including Kenya Airways; Kenya Power and Lighting
Company and Postal Corporation of Kenya, which were
in dire need of cash to meet critical obligations.
57. Mr. Speaker, we have developed a robust
Information Management System to strengthen the
statutory role of the National Treasury in financial and
operational oversight as well as financial risk analysis for
State Corporations.
58. Mr. Speaker, you may recall that, the Government
introduced cost sharing in public universities in the year
1991. At that time, Government funding to public
universities per year was set at Ksh 120,000 per
student. Of this, Government capitation per student was
Ksh 70,000 while students contributed Ksh 50,000
through loan funding from Higher Education Loans Board
out of which Ksh 16,000 catered for tuition fees. This is
less than half of tuition fees paid currently by students
in various colleges of Technical, and Vocational
Education and Training institutions. The ideal cost of
training a student in a university has increased from Ksh
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120,000 to about Ksh 200,000 per year and therefore
the prevailing funding arrangement introduced in 1991,
is unsustainable. Under the current arrangement,
Universities have not only experienced financial
constraints but have also been unable to continuously
honour their statutory obligations. Mr. Speaker, in
order to ensure sustainability and self-reliance of public
universities, the Ministry of Education is expected to
engage stakeholders beginning July 2021 with a view to
addressing the matter.
Pending Bills
59. Mr. Speaker, delays in payment of pending bills to
businesses who provide services to both National and
County Governments has affected liquidity and
operations of these entities. In a number of cases, this
has led to closure of businesses and affected livelihoods
of the suppliers. Though progress was made in
settlement of these bills by the National Government, we
still have challenges with the County Governments that
still owe various suppliers huge amounts. In this regard,
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I direct Government Ministries, Departments and
Agencies and the County Governments to clear all their
pending bills by 30th June, 2021.
60. Mr. Speaker, I urge this House to support our
efforts towards enforcing compliance in payment of all
verified pending bills by County Governments by backing
our proposal under Article 225 of the Constitution of
Kenya to temporarily stop transfers to County
Governments that persistently fail to comply with the
directive to clear pending bills.
Financial Sector Stability and Development
61. Mr. Speaker, the financial sector has remained
stable and continue to make significant contributions to
economic growth. Our commercial banks continue to
expand their businesses to the neighbouring markets,
including recent acquisitions in the Democratic Republic
of Congo and the Republic of Uganda. The continued
regional expansion will leverage on the trade and
investment opportunities under the Africa Continental
Free Trade Area.
34
62. Mr. Speaker, in 2020, the Kenyan banking sector
continued on its transformation journey that
commenced five years ago where the key pillar of the
journey has been the strengthening of banks’ business
models, governance frameworks and entrenching
customer centricity in their operations.
63. Mr. Speaker, at the onset of the COVID-19
Pandemic in March 2020, the banking sector moved
quickly to mitigate the impact of the Pandemic on staff,
customers and the public and instituted emergency
measures to support business continuity, use of digital
channels to mitigate COVID-19 infection risk, enhanced
liquidity to businesses as well as facilitate compliance
with health and safety protocols. As a result, banks
continued to provide uninterrupted banking services to
customers mainly through digital channels.
64. Mr. Speaker, over the last one year, more than 54
percent of the bank loans, equivalent to Ksh 1.7 trillion
were restructured to enable borrowers navigate through
the hard time due the pandemic. As we move to the
35
recovery phase, the banking sector will be expected to
play a pivotal role in supporting the recovery of
enterprises.
65. Mr. Speaker, to spur economic recovery, additional
capital and investments are required. In this regard, the
recently established Nairobi International Financial
Centre Authority will play an important role and is
expected to publish, before end of December, 2021, a
framework for attracting investments and innovative
financial services into our economy and the region.
Support to Affordable Housing
66. Mr. Speaker, the high cost of mortgages, land
acquisition and housing units has limited access to
affordable housing. Nevertheless, Government
interventions are beginning to yield the desired results
for affordable housing. Significant progress has been
made to enhance efficiency, transparency and certainty
in land matters by re-engineering the land registration
processes, digitization of land records and
implementation of the Sectional Properties Act. The
36
Government is also in the process of streamlining and
simplifying the legal and regulatory process governing
the housing sector and providing basic infrastructure
services to developers.
67. Further, the Kenya Mortgage Refinance Company is
supporting the growth of residential housing market in
Kenya by providing long-term funding to the mortgage
lenders in order to increase affordability of mortgage
loans to Kenyans. As of December 2020, Kenya
Mortgage Refinance Company had refinanced 1,400
affordable housing loans worth Ksh 2.75 billion.
68. Mr. Speaker, the Kenya Mortgage Refinance
Company is scheduled to issue an infrastructure bond by
October 2021 to raise additional financing for its
affordable housing finance objectives. Subsequently, the
Company plans to issue Green Bonds to finance climate
friendly housing projects.
37
Credit Support to Micro, Small and Medium
Enterprises
69. Mr. Speaker, during the current fiscal year, the
Government operationalized the Credit Guarantee
Scheme by providing seed capital of Ksh 3.0 billion to
de-risk lending to Micro, Small and Medium Enterprises.
To this effect, the National Treasury signed Credit
Guarantee Agreements with seven commercial banks
who have now rolled out credit to Micro, Small and
Medium Enterprises. Mr. Speaker, to further promote
access to affordable credit by Micro, Small and Medium
Enterprises, the Government has committed to
progressively raise the capital to Ksh 10.0 billion. In
this budget, I propose to allocate an additional Ksh 2.0
billion to the Scheme.
70. Mr. Speaker, alongside the Credit Guarantee
Scheme, on account of improved business environment,
the private sector has rolled out other innovative credit
products targeting Micro, Small and Medium Enterprises.
Through these innovations the banking sector, had
disbursed over Ksh 20.8 billion to Micro, Small and
38
Medium Enterprises, equivalent to 0.7 percent of total
gross loans by end of April 2021. Mr. Speaker, in order
to unlock the full potential of digital lenders, the
Government has through the Central Bank of Kenya
(Amendment), Bill, 2021, proposed to provide for
licensing of digital credit service providers. This Bill has
been submitted to this House for consideration and
approval.
Capital Markets
71. Mr. Speaker, capital markets play a critical role of
channelling national savings and foreign capital inflows
into the productive sectors. In order to enhance
inclusivity and access to the investment opportunities in
the capital markets, I propose to amend the Central
Depositories Act, to allow for opening of omnibus
investment accounts by persons investing on behalf of
others in the securities market. This will allow
investments by individuals as well as collective
investment by groups.
39
72. Further, to improve efficiency in our capital markets
and ensure fair administrative actions by the Capital
Markets Authority, I propose to amend the Capital
Markets Act to enable the Capital Markets Tribunal to
hear and determine any appeal within 90 days.
73. Mr. Speaker, working with the Kenya Bankers
Association and other industry players we shall establish
an electronic Over-The–Counter secondary market
platform for Government securities. This platform will
help in deepening our domestic debt market, improve
pricing efficiency and transparency in securities trading
thereby lowering yields and cost of credit in the
economy. We expect the operations of the Over-The–
Counter to be in place by June 2022.
Pension Reforms
74. Mr. Speaker, the defined benefit pension scheme
for civil servants, teachers and disciplined forces has
constrained growth of pension savings and also exerted
fiscal pressure on Government. In order to address
these twin problems, the Government, on 1st of
40
January,2021, rolled out the much-awaited Public
Service Superannuation Scheme that covers civil
servants, teachers and the disciplined forces aged below
45 years at the commencement of the Scheme with an
option for those over 45 years to join if they elect to do
so. As of April 2021, a total of 340,318 public servants
had indeed joined the Scheme.
75. Mr. Speaker, in the past, the processing and
payment of pension benefits to retired public servants
has neither been efficient nor timely, thus denying senior
citizens regular incomes. To address this, National
Treasury has carried out targeted reforms including
systems re-engineering and the provision of real-time
pension services in all the Huduma Centres countrywide.
I am pleased to note that as a result of these
interventions, the cumulative pension payments and
pension files processed increased by 40 percent by 31st
May, 2021 compared to the previous year. We expect
further improvement with the planned implementation
41
of Pensions Management Information System later in the
year.
76. Mr. Speaker, given the disparities in the design of
the various existing pension schemes and the attendant
laws, it has become necessary that these laws be
harmonised, hence the need for establishment of one
National Retirement Policy. The policy currently under
development seeks to achieve comprehensive pension
coverage across formal and informal sector so as to
protect the interests of beneficiaries and rights of
pension contributors. In this regard, Mr. Speaker, I
shall be publishing this policy by December 2021.
77. Mr. Speaker, further, to enhance good governance
and improve accountability and transparency in the
management of retirement benefits schemes, I propose
to amend the Retirement Benefits Act to provide for the
registration and regulation of corporate trustees that
provide services to pension schemes.
78. Mr. Speaker, our retired citizens have continued to
experience challenges in accessing medical care. For this
42
reason, we have developed post-retirement medical
regulations to allow members to make additional
voluntary contributions to a medical fund. This will
enable retirees access the funds at retirement or
transfer a portion of it to a medical insurance provider.
However, the existing regulations exclude post-
retirement medical funds established under irrevocable
trust by employers and service providers outside a
retirement benefits scheme popularly known as “Stand-
Alone Post-Retirement Medical Funds”. These funds
have remained unregulated thus adversely exposing
members’ funds. As such, I propose to amend the
Retirement Benefits Act to provide for regulation of
these funds.
Informal Sector Pension Scheme
79. Mr. Speaker, majority of Kenyans in the informal
sector are not covered by any pension scheme making
them vulnerable during old age. To address this, I
undertook last year to establish a National Informal
Sector Pension scheme with a sustainable model that
43
combines long-term savings with short-term needs
targeting the more than 15 million informal sector
workers who have been excluded from the current
pensions arrangement.
80. To this effect, I wish to report that necessary
instruments to operationalize the scheme including, the
Trust Deed & Rules, Business plan, and Investment
Policy have been prepared. We intend to roll out this
scheme in the next financial year.
81. Mr. Speaker, to reinforce realisation of affordable
housing, last year, we amended the Retirement Benefits
Act and mortgage regulations to allow members use part
of their accumulated benefits to purchase residential
houses. This was to support members of retirement
benefit schemes to own homes. In this budget, I
propose to amend the mortgage regulations to allow
members utilize up to 40 percent or maximum of Ksh
7.0 million of their accrued benefits to purchase a
house under a tenant purchase basis by their pension
scheme.
44
Insurance Reforms
82. Mr. Speaker, currently, foreign insurance brokers
are excluded from the definition of brokers under the
Insurance Act, thereby making them operate in the
country without any controls, thus putting insurers and
policyholders at a risk. To address this, I propose to
amend the Insurance Act to provide for the regulation of
foreign insurance brokers.
83. Mr. Speaker, classes of long-term insurance
business were amended in 2009 to align with modern
classification and bring into perspective the industry's
current size. However, the permitted maximum
management expenditure was not updated to match the
new classification which causes insurers to either
overestimate or underestimate the management
expenses impacting negatively on policyholders. I,
therefore, propose to amend the Insurance Regulations
to provide for the maximum permitted expenditure for
each category.
45
Disaster Risk Management Framework
84. Mr. Speaker, to effectively manage disaster
response in a more coordinated manner, the
Government has developed a Disaster Risk Management
Bill, 2021. The objective of the Bill is to better prepare
and coordinate for disasters response, mitigation and
recovery as well as build resilience at both national and
county level. Given the urgency to provide a framework
for disaster management at both levels of Government,
I appeal to this House to prioritize consideration of this
Bill.
Building Resilience against Climate Change
85. Mr. Speaker, climate change remains a key
concern globally given its adverse impacts on
economies. In this regard, Government will strengthen
capacity of National and County Governments to plan,
budget, implement and monitor climate resilience
investments. The Government has partnered with
development partners in the implementation of the
proposed Financing Locally Led Climate Action
46
Program and already mobilized funding of over Ksh 18
billion to support the initiative over the next five years.
Through this program, we shall strengthen National and
County Governments’ capacities to manage climate risk
through support to the County climate change units,
establishment of County Climate Change Fund and
development of climate change laws.
86. Mr. Speaker, the Government has also developed
and approved the Sovereign Green Bond Framework,
identified a portfolio of projects for consideration under
the framework and is prepared to issue the first
Sovereign Green Bond to raise capital to finance green
projects under the economic recovery strategy.
Trade and Investment Facilitation
87. Mr. Speaker, as part of Ease of Doing Business
Reforms to facilitate trade, we have finalized the
development of Maritime Single Window System under
the TradeNet System. This will provide a harmonized
and simplified ship to shore clearance procedures to
maritime stakeholders. The Maritime Single Window
47
System will allow shipping agents in Kenya to
electronically submit vessel pre-arrival and pre-
departure declarations to Government Agencies. The
Maritime Single Window System is expected to replace
the current system that is manual, decentralized, with
unnecessary lengthy processes that affect the ship
turnaround time and increase costs at the port of
Mombasa. I am pleased to note that this Maritime Single
Window System went live on 2nd June, 2021.
IV. FISCAL FRAMEWORK FOR FY 2021/22
BUDGET
88. Mr. Speaker, the fiscal policy supporting the FY
2021/22 and the medium-term budget is designed to
support economic recovery and reduce fiscal deficit. The
policy aims to mobilize revenues through the ongoing
reforms in tax policy and administration. On the
expenditure side, the focus will be to rationalize non-
priority expenditures from the budget and align the
resources to the “Big Four” Agenda and the Economic
Recovery Strategy.
48
89. Mr. Speaker, the execution of the budget for FY
2020/21 has progressed well albeit with revenue
underperformance and elevated expenditures
associated with the adverse impact of COVID-19
Pandemic. The shortfalls in revenues reflect weaker
business environment and the impact of containment
measures adopted in March 2020 following the outbreak
of the Pandemic. The Government then, responded to
the Pandemic by among others implementing tax reliefs
measures in April 2020. These measures resulted in
reduced collection of revenues adversely impacting the
implementation of the budget. Arising from this, the
Government in January 2021, made reversal of some of
the relief measures resulting in improvement in revenue
collection. However, in March 2021, containment
measures were re-introduced as a result of the third
wave of the COVID-19. These measures lasted for only
one month.
90. Mr. Speaker, we remain committed to reducing the
level of tax exemptions to create parity of treatment
49
while also raising more revenues to fund social
programmes and reducing the fiscal deficit. In this
budget, I will be proposing selected measures to expand
the revenue base.
91. Mr Speaker, our tax policies are spread across
various tax statutes which are amended every year
during the budget process creating uncertainty in tax
legislation. In this regard, Mr Speaker, I have initiated
a process of developing a National Tax Policy Framework
that will not only enhance administrative efficiency of the
tax system but provide consistency and certainty in tax
legislation and management of tax expenditure. A draft
National Tax Policy is now ready and will be shared with
stakeholders and members of the public in line with the
dictates of our constitution before forwarding to this
House for consideration and approval.
Revenue Projections for the FY 2021/22
92. Mr. Speaker, total revenue including
Appropriations-in-Aid and grants for the FY 2021/22
budget is projected at Ksh 2.1 trillion, equivalent to
50
17.0 percent of GDP. Of this, total revenue is projected
at Ksh 2.04 trillion, equivalent to 16.4 percent of
GDP, an increase in nominal terms from Ksh 1.84
trillion in the FY 2020/21. Ordinary revenue in the
budget is projected at Ksh 1.78 trillion, equivalent to
14.3 percent of GDP.
Expenditure Projections for the FY 2021/22
93. Mr. Speaker, total expenditures in the FY 2021/22
budget are projected at Ksh 3.03 trillion equivalent to
24.5 percent of GDP from Ksh 2.89 trillion equivalent
to 25.8 percent of GDP in the FY 2020/21 budget.
Recurrent expenditures will amount to Ksh 2.0 trillion
or 16.2 percent of GDP. On the other hand,
development expenditures including foreign financed
projects, allocation to Contingencies Fund and
conditional transfers to County Governments are
projected at Ksh 669.6 billion. This funding is expected
to accelerate completion of ongoing critical
infrastructure projects in the country.
51
94. Mr. Speaker, the expenditures I have outlined in
this budget are consistent with those approved in the
2021 Budget Policy Statement. Given the performance
of revenue and the available level of funding from our
Development Partners, it is necessary that we strictly
adhere to the expenditure ceilings as presented so as to
manage and stabilise public debt.
Fiscal Balance for the FY 2021/22
95. Mr. Speaker, given the projected revenues and
grants against the projected expenditures, the fiscal
deficit for the FY 2021/22 budget is projected at Ksh
929.7 billion equivalent to 7.5 percent of GDP. This
fiscal deficit is lower than the Ksh 976.2 billion
equivalent to 8.7 percent of GDP in the financial year
2020/21 budget. The fiscal deficit in FY 2021/22 budget
will be financed through net external financing of Ksh
271.2 billion equivalent to 2.2 percent of GDP and
net domestic financing of Ksh 658.5 billion equivalent
to 5.3 percent of GDP.
52
96. Mr. Speaker, our medium-term consolidation
policy aims at reducing fiscal deficit progressively to Ksh
613.8 billion equivalent to 3.6 percent of GDP by FY
2024/25. In this respect, we shall closely monitor the
impact of COVID-19 to the economy and accordingly
adjust the fiscal plan including tax measures to ensure
that our development agenda remains sustainably
funded.
97. We shall carefully do this while limiting in-year
adjustments of the budget for new projects except those
of emergency nature. This will enhance certainty in the
budget process and improve implementation of
Government programmes and projects while adhering to
the fiscal consolidation plan.
Strengthening Public Debt Management
98. Mr. Speaker, Kenya’s public debt remains
sustainable but the debt carrying capacity has however
declined. Financing of the fiscal deficit will continue to be
strictly guided by the Debt and Borrowing Policy and the
annual Medium-Term Debt Strategy.
53
99. Mr. Speaker, the Government is implementing
reforms to strengthen the institutional arrangement of
public debt management by aligning the operations of
the Public Debt Management Office to the PFM Act. In
this respect, decisions on the day-to-day management
and operations of public debt management shall be
undertaken by the Public Debt Management Office to
enhance efficiency, strengthen accountability and
transparency.
100. In addition, Mr. Speaker, during this calendar
year we have scheduled a set of debt management
operations to lower cost and risk in our public debt
portfolio to improve on the country’s debt sustainability
indicators and sovereign credit rating. I look forward for
support of the august House for the amendment of
public debt ceiling set in the Public Finance Management
Act to enable implementation of debt management
operations including financing of the fiscal deficit.
54
Public Private Partnerships Framework
101. Mr. Speaker, with the desire to meet our
development objectives, the gap between development
needs and available resources has been expanding,
underscoring the need for alternative financing
mechanisms. Last year, I highlighted the importance of
Public Private Partnerships as an option for closing the
financing gap. The current Public Private Partnership Act
impedes expeditious financial closure of Public Private
Partnership projects. To this effect, I undertook to
transform the Public Private Partnerships framework,
which included review of legal, operational and
institutional structures. In this regard, I submitted the
Public Private Partnership Bill, 2021 to this House for
consideration and approval.
V. SPENDING PRIORITIES
102. Mr. Speaker, let me now turn to the highlights
of the Government spending priorities in the coming
financial year. In light of revenue challenges and
55
significant expenditure demands, spending in the FY
2021/22 will focus on critical areas with the highest
impact on the well-being of Kenyans and support
economic recovery. Therefore, the total programmed
spending for the FY 2021/22 excluding redemptions
amounts to Ksh 3.03 trillion.
Economic Stimulus Programme
103. Mr. Speaker, the Government will continue
with the implementation of the Economic Stimulus
Programme in the FY 2021/22, which targets to cushion
vulnerable citizens and businesses particularly those
affected by the COVID-19 Pandemic. We have in this
regard set aside, Ksh 23.1 billion in the FY 2021/22
budget for continuation of this Programme.
104. Mr. Speaker, out of this, Ksh 3.0 billion is
earmarked for youth empowerment and employment
creation under the Kazi Mtaani Programme, Ksh 2.6
billion will go towards enhancing liquidity to businesses;
Ksh 6.4 billion for improving education outcomes; Ksh
6.9 billion for improving environment, water and
56
sanitation facilities; Ksh 1.97 billion for improving
agriculture and food security as well as Ksh 1.2 billion
for recruitment of health wokers. Mr. Speaker, I have
also set aside Ksh 1.0 billion for Kenya Wildlife Services
to employ Community Scouts.
Fulfilling the “Big Four” Agenda
105. Mr. Speaker, implementation of priority
programs under the “Big Four” Agenda is a critical path
to supporting sustainable economic recovery and
accelerating employment creation. To realize this, Mr.
Speaker, I have set aside Ksh 142.1 billion to support
the implementation of the “Big Four” Agenda, for both
Drivers and Enablers projects.
Universal Health Coverage
106. Mr. Speaker, the outbreak and rapid spread of
the COVID-19 Pandemic necessitated an urgent need to
upscale implementation of Universal Health Coverage to
all our counties.
107. Towards this end, Mr. Speaker, I have
proposed an allocation of Ksh 121.1 billion to the
57
health sector to support the various programmes aimed
at improving health outcomes.
108. Mr. Speaker, of this amount Ksh 47.7 billion
will fund activities and programmes for the attainment
of Universal Health Coverage. Mr. Speaker, specific
allocations for various activities and programmes
include: Ksh 8.7 billion for the Kenya COVID-19
Emergency Response Project; Ksh 4.1 billion for Free
Maternity Health Care; Ksh 7.2 billion for the Managed
Equipment Services as well as Ksh 1.8 billion to
provide medical cover for the elderly and severely
disabled persons in our society. To lower cases of
HIV/AIDS, Malaria and tuberculosis in the country, Ksh
5.8 billion has been set aside. To enhance vaccines and
immunizations programme, we have set aside Ksh 3.9
billion. Further, Mr. Speaker, we propose an additional
Ksh 14.3 billion for purchase of COVID-19 vaccines
and related expenditures in the course of FY 2021/22.
109. Mr. Speaker, to enhance early diagnosis and
management of cancer, and reduce the burden of
58
treatment among Kenyans, I have proposed an
allocation of Ksh 450 million for procurement of Cyber
Knife Radiotherapy Equipment for Kenyatta University
Teaching, Referral and Research Hospital. A further Ksh
350 million has been set aside for the establishment of
two cancer centres in Meru and Kakamega.
110. Further, to improve health service delivery,
Ksh 15.2 billion has been set aside for the Kenyatta
National Hospital; Ksh 11.5 billion for the Moi Teaching
and Referral Hospital; Ksh 7.3 billion for the Kenya
Medical Training Centres; Ksh 2.8 billion for the Kenya
Medical Research Institute; Ksh 1.3 billion for the
construction of Kenya National Hospital Burns and
Paediatrics Centre; Ksh 863.0 million for procurement
of family planning & reproductive health commodities;
and Ksh 600.0 million for procurement of equipment
at the National Blood Transfusion Services.
Affordable Housing
111. Mr. Speaker, Affordable Housing Programme
is a pragmatic approach to addressing the housing
59
problem especially in the urban centres. To ensure
success of this initiative, I have proposed an allocation
of Ksh 13.9 billion for the Affordable Housing
Programme. The proposed allocation includes: Ksh 3.5
billion to Kenya Mortgage Refinance Company for
enhancement of the company’s capital as well as for on-
lending to primary mortgage lenders; Ksh 8.2 billion
for construction of Affordable Housing Units as well as
Ksh 500.0 million for construction of Social Housing
Units.
112. Mr. Speaker, to support the Nairobi
Metropolitan Services in reversing urban indignity in
Nairobi City County, Ksh 100.0 million has been set
aside for the Nairobi Metropolitan Services Improvement
Project and Ksh 111.2 million for construction of foot
bridges.
113. Other key allocations to the Housing, Urban
Development and Public Works sector includes Ksh 3.5
billion for the Kenya Informal Settlement Improvement
Project-Phase II; Ksh 1.0 billion for construction of
60
markets; Ksh 1.0 billion for maintenance of
Government Pool Houses; Ksh 750 million for the
construction of Housing Units for the National Police and
Kenya Prison; Ksh 700.0 million for the Kenya Urban
Programme; Ksh 200.0 million for the Africities
Summit; and Ksh 45.6 million for the construction and
completion of stalled Government buildings. In addition,
Mr. Speaker, I have proposed an allocation of Ksh
700.0 million to support the Nairobi Bus Rapid
Transport Project to offer an efficient and time saving
public transport.
Supporting Manufacturing for Job Creation
114. Mr. Speaker, the Government continues to
scale up reforms to encourage investment in the
manufacturing sector to support and protect local
industries. Despite the challenges brought about by
COVID-19 Pandemic, the fiscal and monetary policy
measures that the Government implemented,
significantly cushioned the sector.
61
115. Mr. Speaker, to further promote local
industries, I have proposed an allocation of Ksh 20.5
billion under various implementing Ministries,
Departments and Agencies. Out of this, Ksh 2.0 billion
will go to the Credit Guarantee Scheme to enhance
access to affordable credit by Micro, Small and Medium
Enterprises in the manufacturing sector; Ksh 500
million will support development of various Micro, Small
and Medium Enterprises in Kenya; and Ksh 600 million
for provision of finances to Micro, Small and Medium
Enterprises through the Kenya Industrial Estate.
116. In addition, Mr. Speaker, I have set aside Ksh
8.3 billion for Dongo Kundu Special Economic Zone;
Ksh 350 million for the development of the Special
Economic Zone Textile Park in Naivasha, Kenanie
Leather Industrial Park and Athi River Textile Hub; Ksh
90 million for the Freeport and Industrial Park Special
Economic Zone in Mombasa. Other proposed allocations
include; Ksh 130.2 million for the modernization of
62
RIVATEX and Ksh 800 million for access roads to
industrial park facilities.
117. Mr. Speaker, in order to maximize the benefits
from our cash crops, the Government will make further
investments towards their revival and enhancement of
output. In this respect, Mr. Speaker, I have proposed
Ksh 210.4 million for coffee industry revitalization;
Ksh 59.2 million for modernization of cooperative
cotton ginneries and Ksh 50 million for the Cotton
Development as subsidy and extension support.
118. Mr. Speaker, to equip our youth with essential
training and internship opportunities; I have proposed
an allocation of Ksh 1.4 billion for the Kenya Industry
and Entrepreneurship Project; Ksh 800 million for the
Kenya Youth Employment and Opportunities Project;
Ksh 448 million for Industrial Research Laboratories;
Ksh 199.5 million for Constituency Industrial
Development Centers.
63
Enhancing Food and Nutrition Security
119. Mr. Speaker, in order to support our
aspirations of attaining 100 percent food and nutrition
security, I have set aside Ksh 60.0 billion for relevant
programs in this budget.
120. Out of this, Ksh 7.0 billion will go to the
National Agricultural and Rural Inclusivity Project; Ksh
2.7 billion for the Kenya Cereal Enhancement
Programme; Ksh 1.8 billion has been proposed for the
Emergency Locusts Response; Ksh 1.5 billion for the
National Value Chain Support Programme; Ksh 1.5
billion for the Agricultural Sector Development Support
Programme II; Ksh 1.5 billion for the Small Scale
Irrigation and Value Addition Project; and Ksh 620
million for Food Security and Crop Diversification
Project.
121. Mr. Speaker, to improve livestock production,
I propose Ksh 3.0 billion for Free Disease Holding
Ground in Lamu. I have also proposed Ksh 488.1
million for the Regional Pastoral Livelihood Resilience
64
Project; Ksh 455.0 million for the Kenya Livestock
Commercialization Programme; Ksh 163.0 million for
the Livestock Value Chain Support Project; and Ksh
156.2 million for Livestock Production under “Big Four”
initiative. To enhance animal diseases control, I have set
aside Ksh 180.0 million for Sustainable Tsetse and
Trypanosomiasis Free Areas in Kenya; Ksh 131.4
million for the Disease-Free Zones Program; and Ksh
60.0 million for modernization of the Foot and Mouth
Disease Laboratory and related activities.
122. Mr. Speaker, the realization of the food and
nutrition security also relies heavily on the sustainable
utilization of the blue economy resources. To promote
this, I have proposed an allocation of Ksh 3.2 billion
for the Aquaculture Business Development Project; Ksh
3.4 billion for Kenya Marine Fisheries & Socio-Economic
Development Project; Ksh 2.1 billion for Exploitation of
Living Resources under the Blue Economy; Ksh 1.0
billion for construction of Fish Processing Plant in Lamu;
Ksh 290.0 million for Coastal Fisheries Infrastructure
65
Development; Ksh 326.6 million for rehabilitation of
Fish Landing Sites in Lake Victoria; Ksh 150.0 million
for Aquaculture Technology Development and
Innovation Transfers; and Ksh 195.3 million for
Development of Blue Economy Initiatives.
123. Mr. Speaker, in order to increase agricultural
productivity and enhance resilience to climate change
risks in targeted smallholder farming and pastoral
communities in Kenya, I have set aside Ksh 8.9 billion
for the Climate Smart Agricultural Productivity Project;
Ksh 1.1 billion to enhance drought resilience and
sustainable livelihood; Ksh 178.0 million towards
Ending Drought Emergencies in Kenya and in addition, I
have proposed an allocation of Ksh 529.5 million for
the Livestock and Crop Insurance Scheme to reduce the
vulnerabilities of Kenyan farmers to diseases and natural
disasters.
124. Mr. Speaker, to ensure legitimacy of land
ownership, I have set aside Ksh 1.5 billion for
Processing and Registration of Title deeds; Ksh 600
66
million for Digitization of Land Registries and Ksh 105
million for Construction of Land Registries.
125. Mr. Speaker, other proposed allocations
include: Ksh 100.0 million for Revitalization of Cotton
Industry; Ksh 300 million for mitigation of Fall Army
Worms; Ksh 150 million for establishment of Liquid
Nitrogen Plant; Ksh 200 million towards the Embryo
Transfer Project and Ksh 65 million for construction
and refurbishment of the Leather Science Institute.
126. Mr. Speaker, having highlighted expenditures
under the Economic Stimulus Programme and the “Big
Four” Agenda initiatives, allow me to turn to other
proposed areas of expenditures in this budget that will
support our path to sustainable and resilient economic
recovery.
Investing in Critical Infrastructure
127. Mr. Speaker, the Government continues to
expand critical infrastructure in roads, railways, sea and
airports to create an enabling environment for economic
recovery and employment creation. Towards this end, I
67
have proposed an allocation of Ksh 182.5 billion,
excluding the provisions I have set aside for the
Economic Stimulus Programme and “Big Four” Agenda,
to support construction of roads and bridges as well as
their rehabilitation and maintenance.
128. Mr. Speaker, the rehabilitation of the meter
gauge railway has improved interconnectivity and
reduced traffic congestion on our roads. To continue
improving public transport within the Nairobi
Metropolitan Area, I have set aside Ksh 1.3 billion for
Railways Metro Lines. Further, Mr. Speaker, to expand
railway transport to the rest of the country, I have set
aside Ksh 27.2 billion for Phase II of the Standard
Gauge Railway; Ksh 2.0 billion for construction and
rehabilitation of Naivasha Inland Container Depot –
Malaba Line; Ksh 2.0 billion for construction and
rehabilitation of Riruta/Lenana – Ngong Railway; Ksh
1.1 billion to complete rehabilitation of the Nairobi-
Nanyuki Meter Gauge Railway Line; and Ksh 700
million to complete rehabilitation of the Nakuru-Kisumu
68
Meter Gauge Railway. I have also set aside Ksh 2.0
billion for Kenya National Ship Yard.
129. Mr. Speaker, to support development of our
ports, I have proposed an allocation of Ksh 7.5 billion
for the construction of the Mombasa Port Development
Project; and Ksh 7.5 billion for the LAPSSET Project.
Further, I have set aside Ksh 128.0 million for
insurance of ferries for the Likoni channel; Ksh 149.0
million for maintenance of ferries and jetties
headquarters and Ksh 603.0 million for construction
and expansion of airports and airstrips.
130. Mr. Speaker, to support production of reliable
and affordable energy, I have set aside a total of Ksh
71.9 billion excluding the provisions set aside under the
“Big Four” Initiatives. Out of this, Ksh 50.1 billion will
cater for transmission and distribution of power; Ksh
11.3 billion for development of geothermal energy;
Ksh 6.4 billion for electrification of public facilities and
Ksh 1.3 billion for development of nuclear energy as
well as exploration and mining of coal.
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Improving Security
131. Mr. Speaker, enhanced national security will
create an enabling environment for business to thrive
while aiding faster economic recovery. In this regard, I
have proposed an allocation of Ksh 294.5 billion to
support operations of the National Police Service,
Defence and the National Intelligence Service.
132. Mr. Speaker, the proposed allocations include
Ksh 119.8 billion for Defence; Ksh 42.5 billion for the
National Intelligence Service; Ksh 110.6 billion for
Policing and Prisons Services; Ksh 10.7 billion for
leasing of police motor vehicles and Ksh 1.0 billion for
Police Modernization Programme. Mr. Speaker, to step
up war on crime and enhance support to administration
of justice, I have set aside Ksh 1.5 billion for the
National Communication and Surveillance System; and
Ksh 335.0 million to equip the National Forensic
Laboratory.
133. Mr. Speaker, other allocations include Ksh
4.8 billion for medical insurance for the National Police
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Service and Prisons; Ksh 2.3 billion for the group
personal insurance for National Police Service and
Prisons as well as Ksh 1.0 billion for the National
Integrated Identity Management System.
Enhancing Quality and Relevant Education
134. Mr. Speaker, the outbreak of Covid-19
Pandemic last year disrupted in-person learning leading
to closure of schools for nine months. The Government
is determined to recover the lost time while ensuring
safe learning in our schools, colleges and universities. In
this respect, I have set aside a total of Ksh 202.8
billion to support programmes in the education sector.
135. Mr. Speaker, out of the proposed allocation,
Ksh 12.0 billion will cater for Free Primary Education;
Ksh 2.5 billion for recruitment of teachers; Ksh 62.2
billion for Free Day Secondary Education including
insurance under NHIF for secondary school students;
Ksh 4.0 billion for examinations fee waiver for all class
eight and form four candidates; and Ksh 1.8 billion for
the School Feeding Programme.
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136. In addition, Mr Speaker, I have proposed an
allocation of Ksh 1.0 billion for the Competency Based
Curriculum and Ksh 420.0 million for the Digital
Literacy Programme and ICT Integration in our
Secondary Schools.
137. Mr. Speaker, to support infrastructure
development and ensure safe learning in our schools, I
have proposed an allocation of Ksh 4.2 billion for
Primary and Secondary schools’ infrastructure and Ksh
1.8 billion for construction and equipping of Technical
Training Institutes and Vocational Training Centres.
Further, Ksh 1.1 billion has been set aside to increase
access and improve the quality of Technical and
Vocational Education and Training programs under the
East Africa Skills Transformation and Regional
Integration Project.
138. Mr. Speaker, other proposed allocations to the
education sector include: Ksh 281.7 billion to Teachers
Service Commission; Ksh 76.3 billion for University
Education; Ksh 15.8 billion to the Higher Education
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Loans Board; Ksh 5.8 billion for Kenya Secondary
Education Quality Improvement Project; and Ksh 5.2
billion capitation for TVET students. Further, Ksh 745.0
million has been set aside for Technical, Vocational
Education Training and Entrepreneurship; Ksh 633.0
million for promotion of Youth Employment and
Vocational Training; and Ksh 323.0 million for the
National Research Fund.
Protecting the Vulnerable Groups
139. Mr. Speaker, when Covid-19 Pandemic struck
last year, we injected additional resources to the
traditional cash transfer programme to cushion the
vulnerable in our society. To continue protecting this
vulnerable segment, I have proposed an allocation of
Ksh 37.8 billion for social protection and affirmative
actions in this budget.
140. Mr. Speaker, out of this allocation, Ksh 16.7
billion will cater for cash transfers to elderly persons,
Ksh 7.9 billion for Orphans and Vulnerable Children
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and Ksh 1.2 billion for persons living with severe
disabilities.
141. Mr. Speaker, the proposed allocation also
includes Ksh 4.1 billion for the Kenya Hunger Safety
Net Programme; Ksh 3.7 billion for the Kenya
Development Response to Displacement Impact Project;
and Ksh 2.7 billion for the Kenya Social and Economic
Inclusion Project. In addition, Ksh 933.8 million will go
to the Child Welfare Society of Kenya; Ksh 400 million
for the Presidential Bursary for the orphans; and Ksh
200 million for National Development Fund for Persons
living with Disabilities.
Equity, Poverty Reduction, Women and
Youth Empowerment
142. Mr. Speaker, the most pressing challenge in
our country at the moment is lack of job opportunities
for the youth. This has been exacerbated by the hard
economic times following the adverse impact of COVID-
19 Pandemic. In order to empower the youth and
support businesses owned by youth, women and
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persons living with disabilities; I have set aside Ksh
10.0 billion for the National Youth Service; Ksh 4.2
billion for the Kenya Youth Empowerment and
Opportunities Project; Ksh 454.1 million for the Youth
Enterprise Development Fund; Ksh 120.0 million for
the Women Enterprise Fund; and Ksh 62.0 million for
the Youth Employment and Enterprise Fund.
143. Mr. Speaker, to promote regional equity,
reduce poverty and enhance social development, I have
set aside Ksh 41.7 billion for the National Government
Constituency Development Fund; Ksh 2.1 billion for
the National Government Affirmative Action Fund; as
well as Ksh 6.8 billion for the Equalization Fund to
finance programmes in previously marginalized areas.
Digitalizing our Economy
144. Mr. Speaker, the rapid technological
advancements portend great potential to catalyse
economic recovery, create jobs and improve lives and
livelihoods of Kenyans.
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145. To leverage on these technological gains, I
have proposed an allocation of Ksh 20.9 billion to fund
initiatives in the Information, Communication and
Technology sector. Specifically, this allocation includes
Ksh 1.0 billion for Government Shared Services; Ksh
670 million for the Digital Literacy Programme.
146. Further, to fast track the development of the
Konza Technopolis City, I have proposed an allocation of
Ksh 12.0 billion for the Horizontal Infrastructure Phase
I; Ksh 3.6 billion for Konza Data Centre and Smart City
Facilities; Ksh 400 million for construction of Konza
Complex Phase 1 B; and Ksh 200 million for
development of Konza Technopolis Masterplan.
147. Mr. Speaker, other proposed allocations
include: Ksh 1.2 billion for maintenance and
rehabilitation of the National Optic Fibre Backbone Phase
II Expansion Cable; Ksh 1.1 billion for installation and
commissioning of Eldoret-Nadapal Fibre Optic Cable;
and Ksh 463.0 million for maintenance and
rehabilitation of Last Mile County Connectivity Network.
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Stimulating Tourism Recovery, Sports,
Culture, Recreation and Arts
148. Mr. Speaker, the outbreak of the COVID-19
Pandemic and the ensuing containment measures
significantly affected tourism, sports, culture, and arts
sectors. To support recovery of these sectors, I have
proposed an allocation of Ksh 15.0 billion for the
Sports, Arts and Social Development Fund; Ksh 1.7
billion for the Tourism Fund; Ksh 643.0 million for
Tourism Promotion Fund; and Ksh 90.0 million for
refurbishment of the regional stadia.
Environmental Protection, Water and
Natural Resources
149. Mr. Speaker, to expand access to clean and
adequate water for domestic and agricultural use, I have
proposed an allocation of Ksh 38.0 billion for water and
sewerage infrastructure development; Ksh 16.4 billion
for water resources management; and Ksh 10.8 billion
for water storage and flood control. In addition, I have
set aside Ksh 10.5 billion for irrigation and land
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reclamation and Ksh 1.6 billion for water harvesting
and storage for irrigation.
150. Mr. Speaker, in order to support environment
and water conservation, I have set aside Ksh 9.6 billion
for forests and water towers conservation; Ksh 3.3
billion for environment management and protection;
Ksh 1.4 billion for Meteorological Service; and Ksh 8.2
billion for wildlife conservation and management.
Improving Governance and Sustaining the
Fight against Corruption
151. Mr. Speaker, to enhance good governance and
scale up fight against corruption, I have set aside Ksh
3.3 billion for the Ethics and Anti-Corruption
Commission; Ksh 3.2 billion for the Office of the
Director of Public Prosecutions; Ksh 7.6 billion for the
Criminal Investigations Services; and Ksh 5.9 billion
for the Office of the Auditor General.
152. Additionally, Mr. Speaker, to enhance the
oversight and legislative role of Parliament and access
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to justice, I propose to set aside Ksh 37.9 billion for
Parliament; and Ksh 17.9 billion for the Judiciary.
Transfers to County Governments
153. Mr. Speaker, acknowledging the place of
devolution in our country, the County Governments will
receive Ksh 370.0 billion as equitable share
representing 27.3 percent of the most recent audited
and approved revenue raised nationally in line with
Article 203 (2) of the Constitution.
154. In addition, the County Governments will
receive Ksh 7.5 billion as conditional allocations
from the National Government share of revenue and Ksh
32.3 billion from development partners, bringing
the total allocation to the County Governments for the
FY 2021/22 to Ksh 409.9 billion. Indeed, this marks
a substantial increase compared to Ksh 353.2 billion
allocation in the FY 2020/21, a clear testimony of the
Government’s commitment to supporting devolution.
155. Mr. Speaker, in line with the High Court ruling
on Petition No. 252 of 2016 directing that conditional and
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unconditional grants to County Governments should not
be provided for under the Division of Revenue Act, the
National Treasury in consultation with other
stakeholders is developing an appropriate legal
instrument to be used to disburse additional conditional
grants from the National Government’s share of revenue
as well as from proceeds of loans and grants to County
Governments.
Transfer of Functions from Nairobi City
County to the National Government
156. Mr. Speaker, in February 2020, the National
Government and the Nairobi City County Government
entered into a mutual agreement in line with Article 187
of the Constitution, through which the Nairobi City
County transferred some of its functions to the National
Government. To ensure that the process of such a
transfer of functions is fully re-enforced in law, the
National Treasury is developing a legislation to
operationalize Articles 187 and 189 of the Constitution
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on Transfer of Functions and Cooperation between the
National and the County Governments.
157. Mr. Speaker, to facilitate performance of the
transferred functions, by the Nairobi Metropolitan
Services, I propose to allocate Ksh 27.2 billion which
will comprise Ksh 18.0 billion for recurrent expenditure
and Ksh 9.2 billion for development expenditure.
Measures to Enhance County Governments’
Own Source Revenue
158. Mr. Speaker, to support County Governments
capacities to enhance their own source revenue and
reduce over-reliance on equitable share, the National
Treasury rolled out a nation-wide capacity building
exercise for the County Governments on interventions
contained in the National Policy to Support Enhancement
of County Governments’ Own-Source Revenue.
159. Mr. Speaker, the Policy, proposes broadening
of the revenue bases while enhancing counties revenue
administrative capacities. The policy further proposes
legal framework to ensure that County Governments
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comply with Article 209(5) of the Constitution of Kenya
when formulating their revenue raising measures. In this
regard, we re-submitted the County Governments
(Revenue Raising Process) Bill, 2020 to this August
House in early 2020 for consideration. It is my hope that
this bill will get necessary priority and approval.
160. Further, Mr. Speaker, the Government
through a multi-agency taskforce has reviewed existing
revenue management systems with a view to deploying
one Integrated County Revenue Management System
for use by all the 47 County Governments. The taskforce
has completed its work and made appropriate
recommendations for consideration by the two levels of
Government.
Equalization Fund
161. Mr. Speaker, in order to provide basic services
to previously marginalized areas as envisaged under the
Constitution of Kenya, the concerned County
Governments have been allocated Ksh 6.8 billion under
the Equalization Fund in the financial year 2021/22.
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162. Mr. Speaker, arising from the High Court
ruling declaring the Equalization Fund Guidelines
unconstitutional, the National Treasury has developed
the Public Finance Management (Equalization Fund)
Regulations, 2021, which is now before this House for
consideration and approval.
VI. TAXATION POLICY MEASURES
163. Mr. Speaker, I will now turn to taxation policy
measures, for the FY 2021/22 budget. I will begin by
highlighting some of the key measures on custom duty
as agreed during the EAC Partner States Pre-Budget
consultations in May, 2021. I will then highlight some of
the proposed amendments in the various tax laws
relating to tax administration. These amendments are
contained in the Finance Bill 2021 that I submitted to
this House in April 2021 for consideration and approval.
164. Mr. Speaker, the custom measures agreed by
the EAC Partner States and the proposed amendments
in the Finance Bill, 2021 are expected to generate an
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additional Ksh 8.7 billion to the exchequer for the FY
2021/22 budget.
Custom Duties
165. On custom duties, Mr. Speaker, during the
EAC Pre-Budget meeting, the Ministers noted with
concern the proliferation of cheap imports into the region
and agreed on measures to protect locally manufactured
products from unfair competition. The agreed measures
under customs shall become effective from 1st July,
2021.
166. Mr. Speaker, to sustain the fight against the
COVID-19 Pandemic, EAC Partner States have agreed to
extend the duty-free importation window for raw
materials and inputs for manufacture of masks,
sanitizers, ventilators and personal protective
equipment remission for a further one year.
167. Mr. Speaker, over the years, we have
developed sufficient capacity for local manufacturing in
the metal and allied subsector. This has generated job
opportunities for our youth. However, the local
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manufacturers in this sub-sector continue to face stiff
competition from cheaper imports. In this regard, and in
order to continue protecting this sub sector, the EAC
Partner States agreed that imported iron and steel
products, shall continue attracting a duty rate of 25
percent with the corresponding specific rates for a
further one year.
168. Mr. Speaker, our farmers have been working
hard to produce enough food to satisfy demand in the
region. In particular, the sector has been meeting local
demands for vegetable products including potatoes,
peas, and tomatoes among others.
169. To protect these farmers and the sector from
cheap imports, the EAC Partner States agreed that
vegetable products including potatoes, peas, tomatoes
among others shall attract a duty rate of 30 percent for
one year as we await the finalization of the review of the
EAC Common External Tariff.
170. Mr. Speaker, baby diapers are essential
products and there is need to supply them at affordable
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prices. In this regard, last year, we allowed
manufacturers to access inputs for manufacture of baby
diapers duty free, under Duty Remission Scheme. This
was meant to support Kenya’s capacity to manufacture
these products locally and create jobs. I am happy to
note that many companies have responded to this
incentive by increasing production. In order to nurture
the growth of this industry, and to continue sustaining
the smiles of babies, we have agreed to extend the duty-
free importation of inputs for manufacture of baby
diapers for a further one year.
171. Mr. Speaker, Kenya has sufficient raw
materials for manufacture of leather and footwear
products. In support of this sector, the Government
imposed a duty of 25 percent on imported products for
manufacture of leather and footwear products. However,
the sector continues to face competition from imported
products due to undervaluation, thereby discouraging
investments in the sector. To this effect and in order to
enhance incomes of our farmers, the EAC Partner States
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have agreed to retain the import duty on imported
products for manufacture of leather and footwear
products at 25 percent and introduce a further specific
duty rate to guard against undervaluation.
172. Mr. Speaker, our Micro, Small and Medium
Enterprises that operate in the jua kali sector have
continued to thrive, creating jobs and incomes to
millions of families. Of particular interest is the furniture
industry, that has continued to attract local artisans who
have been able to provide high quality products.
However, the industry continues to face stiff competition
from imported finished products sometimes of low
quality. In this regard, the EAC Partner States agreed to
extend the applicable import duty on furniture at the
rate of 35 percent for a further one year.
173. Mr. Speaker, to give impetus to the affordable
Housing Programme and facilitate availability of locally
made roofing tiles at affordable prices, EAC Partner
States agreed to extend, for a further one year, the
duty-free window for importing inputs for the
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manufacture of roofing tiles under the Duty Remission
Scheme.
Income Tax Act
174. Mr. Speaker, I now turn to the proposed
amendments to the Income Tax Act. Mr. Speaker, to
ensure equity and fairness in taxation, I have proposed
to align, the Income Tax Act with international best
practice, through introduction of provisions to prevent
tax base erosion and profit shifting as well as restrict
treaty benefits to curb tax evasion and avoidance. In this
respect, I propose to amend the Income Tax Act to
expand the definition of the term “Permanent
Establishment” so as to align the Income Tax Act with
the international best practice.
175. Mr. Speaker, the Finance Act, 2020,
introduced the digital service tax on income earned
through the digital market place. However, the current
tax provisions do not cover all traders who use the digital
service platform to transact their businesses. In this
regard, I propose to expand the scope of the digital
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service tax to include income derived through internet
and electronic network.
176. Further, I propose to amend the Income Tax
Act to align the rate of withholding tax on service fees in
the extractive industry with that withheld in respect of
management and professional services under the same
sector. This will remove ambiguity and manipulation that
result in leakage of tax revenue through re-
characterization of income.
177. Mr. Speaker, private contributions made to
insurance companies enjoy tax relief. However, the
contributions to the National Health Insurance Fund do
not enjoy this relief despite the Fund being the largest
medical cover for majority of Kenyans under the
Universal Healthcare. In order to support the
contributors and encourage more non-registered
persons to join the Fund, I propose to amend the Income
Tax Act to allow contributions to the National Health
Insurance Fund qualify for tax relief at the rate of 15
percent of the contributed amount.
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178. Mr. Speaker, the Income Tax Act provides for
a tax rebate to employers who offer internship to a
minimum of 10 university graduates for a period of one
year. These employers are allowed to deduct, from their
taxable income, an extra fifty percent out of the cost of
the apprentice emoluments. In order to encourage
employers to provide similar opportunities to TVET
graduates, I propose an amendment to the Income Tax
Act to include graduates of TVET institutions under the
programme. Accordingly, employers who engage a
minimum of ten graduates from both Universities and
TVET institutions will be allowed to deduct, from their
taxable income, an extra fifty percent (50%) out of the
cost of the apprentice emoluments. It’s my hope that
employers will take advantage of this incentive and give
our young graduates from the TVET institutions
opportunities to gain practical experience so as to
expand their employability.
179. Mr. Speaker, last year, we revised the
investment allowance regime under the Second
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Schedule to the Income Tax Act to introduce a new
regime and retain the reducing balance method of
deduction. However, under this method, deductions
rarely get exhausted. In order to cure this problem, I
propose to amend the Income Tax Act to replace the
reducing balance method with the straight-line method
which provides definite timeline for the deductions. This
will provide certainty in taxation, ease tax administration
and enhance compliance.
180. Mr. Speaker, we have noted that the current
provisions on deductibility of interest allow some
taxpayers to manipulate their balance sheets to reduce
their tax liabilities. I therefore propose to replace the
current thin capitalization rule that is based on debt-to-
equity ratio with interest restrictions based on a ratio of
earnings before interest, taxes, depreciation and
amortization. Accordingly, any interest paid in excess of
30 percent of a company’s earnings before interest,
taxes, depreciation and amortization will be disallowed
in determination of taxable income. Mr. Speaker, in
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addition to being an international best practice, this
measure has been found to be a better indicator of the
economic performance of businesses hence appropriate
for determining the deductibility of interest on loans.
This will guard against tax planning.
Value Added Tax
181. Mr. Speaker, I now turn to the proposed
amendments under the Value Added Tax Act. In order to
strengthen our healthcare system, make the cost of
medicines affordable for Kenyans, and step up the fight
against COVID-19 Pandemic, I propose to introduce VAT
exemption on medicaments used in our health facilities
including decongestants and food supplements.
182. Further, I propose to provide VAT exemption to
diagnostic and laboratory reagents, artificial respirators
including therapeutic respiration apparatus, breathing
appliances, gas masks as well as medical equipment and
technologies used in the provision of medical services. It
is my hope that the suppliers of these medicaments and
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medical equipment will reciprocate by making their
prices affordable.
183. Mr. Speaker, in order to promote local
manufacturing of pharmaceutical products, I also
propose to introduce VAT exemption on inputs used in
the manufacture of medical ventilators and breathing
appliances. This will enhance access to these products
that are essential in management of the COVID-19
complications.
184. Mr. Speaker, despite the huge potential for
mineral and petroleum resources in this country,
exploration and mining sector remains underdeveloped
due to huge capital outlay requirements. In order to
promote exploration and mining activities in the country,
I propose to exempt from VAT goods for exclusive use
in geothermal or oil exploration and mining prospecting.
185. Mr. Speaker, to boost Kenya’s effort on green
energy, I propose to exempt from VAT equipment for
generation of solar and wind energy.
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186. Mr. Speaker, to provide a transition clause to
allow companies that had already signed power
purchase agreements with Government, I propose to
amend the Value Added Tax Act, to provide for a
transition for the projects that had been signed before
April 2020, to enable them continue benefiting from the
VAT exemption in respect of taxable goods used in the
projects. This transition will expire upon completion of
the said projects.
187. Mr. Speaker, in order to entrench the benefit
of affordable housing including specialised facilities like
student hostels, it is imperative to develop innovative
financing alternatives. In this regard, I propose to
exempt from VAT asset transfer into the Real Estate
Investment Trusts and Asset Backed Securities. This will
deepen our Capital Markets by encouraging investors to
participate in Real Estate Investment Trusts.
Excise Duty Act
188. Mr. Speaker, as I turn to the proposed
amendments to the Excise Duty, Act., The Finance Act
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2020 removed excise duty on betting. The removal of
this tax generated a lot of public debate considering that
betting has become widespread in our society resulting
in negative social effects. In this regard, I propose to re-
introduce excise duty on betting at the rate of 20 percent
of the amount wagered.
189. Mr. Speaker, innovations in the tobacco
industry have led to introduction of new products such
as nicotine pouches. These new products do not fall in
the classification of tobacco products existing in the
Excise Duty Act and are therefore currently not subject
to taxation. In this regard, I propose to introduce excise
duty on products containing nicotine or nicotine
substitutes at a specific rate of Ksh 5.0 per gram. This
rate of excise duty is equivalent to the duty applicable
to similar products under the Act.
190. Mr. Speaker, to support the growth of service
industry particularly e-commerce, I propose to amend
the Excise Duty Act so as to provide a rebate on the
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excise duty paid on internet data by a person who
purchases the data in bulk for resale.
Enhancing Tax Administration Procedures
191. Mr. Speaker, on the proposals to ease tax
administration. Mr. Speaker, Kenya ratified and
deposited the Multilateral Convention for Mutual
Administrative Assistance in Tax Matters (MAC) with the
Global Forum on Transparency and Exchange of
Information on Tax Matters in July 2020. This
Convention is meant to facilitate automatic exchange of
tax information between the Kenya Revenue Authority
and other jurisdictions. In this regard, I have proposed
amendments to the Tax Procedures Act, 2015 to
facilitate the implementation of the Convention. The
convention will also enhance tax compliance by foreign
taxpayers and act as deterrence to tax evasion and illicit
financial flows.
192. In addition, I propose to amend the Tax
Procedures Act to empower the Kenya Revenue
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Authority seek intervention of other Agencies to facilitate
compliance with the provisions of the digital service tax.
193. Mr. Speaker, there are various ways that
some unpatriotic individuals are using to evade payment
of their tax liabilities. For example, we have noted in our
i-tax system: perennial non-compliant tax payers;
defaulters; payment returns without payment; non-
filers; nil filers; credit filers; stop filers and decliners. In
addition, there are traders and merchants who are not
registered at all for tax purposes.
194. Mr. Speaker, to gather information on tax
malpractices, last year, we introduced the iWhistle, a
platform that enables members of the public to
volunteer information. As at end April 2021, the iWhistle
platform had received a total of 502 whistles and we
thank the public for volunteering useful information.
195. Considering the complexities and changing
dynamics on intelligence gathering and to empower the
Kenya Revenue Authority curb tax malpractices, I
propose to amend the Kenya Revenue Authority Act to
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increase the maximum reward to a person who
provides information leading to the identification of un-
assessed taxes from Ksh 100,000 to Ksh 500,000.
Further, I propose to increase the reward to a person
who provides information leading to recovery from
maximum of Ksh 2.0 million to Ksh 5.0 million. This
will encourage receipt of voluntary information to Kenya
Revenue Authority thereby bolstering tax compliance
and revenue collection.
196. Mr. Speaker, the Tax Appeals Tribunal has
been hearing tax disputes and providing judgements at
a very slow pace as the Tribunal sits on a part time basis.
This has led to huge backlog of pending cases before the
Tribunal. Currently, there are 549 pending cases with a
revenue implication of Ksh 107.4 billion. In order to
strengthen the Tribunal and allow members to
expeditiously hear and conclude cases, I have proposed
various amendments to the Act through the Tax Appeals
Tribunal (Amendment) Bill, 2021 which I have submitted
to this House for consideration. I urge the House to
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prioritise this Bill so as to facilitate faster disposal of tax
appeals and boost revenue collection.
Automation of Duty Remission and Tax
Exemptions
197. Mr. Speaker, the processing of applications
under the EAC Duty Remission Scheme has been
manual, time consuming and inefficient. In order to
improve administration of the Scheme, the Government
automated the process, under the Single Window
System, and successfully rolled out in September 2020.
198. Mr. Speaker, to strengthen the administration
of tax exemption process for Official Aid Funded
projects, we have embarked on automation of the
application and approval under the Single Window
System and target to roll out in the next financial year.
VII. CONCLUSION
199. Mr. Speaker, in conclusion, I must state that,
the preparation of this budget required a lot of
balancing. It has not been an easy process considering
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the prevailing weak business environment. I am
confident that the plans I have laid in this budget will be
realized to achieve the envisaged economic recovery
that will lead to improvement of the welfare of Kenyans.
200. Mr. Speaker, it’s worthy to note that, our
President has steered our economy through one of the
most difficult periods occasioned by the COVID-19
Pandemic. His leadership and commitment to protection
of lives and livelihoods through implementation of host
of measures have not only reduced the fatalities caused
by COVID-19 but also supported economic activities.
201. Mr. Speaker, the budget I have presented
today has articulated additional measures that the
Government plans to undertake to further boost
economic recovery. In light of the challenges in
mobilisation of additional revenue and rising expenditure
demands, spending in the next year’s budget will focus
on critical areas with the highest impact on the well-
being of Kenyans.
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202. In this regard, Mr. Speaker, I sincerely thank
His Excellency, President Uhuru Kenyatta for his wise
counsel, unfailing support and guidance not only during
the budget preparation process, but also in the
stewardship of the economy.
203. I also thank my fellow Cabinet Secretaries, the
various Accounting Officers and Staff for their
contributions to the FY 2021/22 budget process.
204. Mr. Speaker, I also express deep gratitude to
Kenyans for their insightful contributions, proposals and
suggestions that helped us to finalize this budget.
205. In addition, my appreciation also goes:
▪ First, to Honorable Speakers of the National
Assembly and the Senate, the Majority and Minority
Leaders as well as other House Leadership and the
respective Clerks for overseeing the approval of the
budget estimates for the FY 2021/22 and the related
documents;
▪ Second, to Honorable Members of the Budget and
Appropriations Committee, the Finance and National
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Planning Committee and all other Departmental
Committees of this house as well as the staff of the
Parliamentary Budget Office, for their constructive
inputs during the approval process of the budget;
▪ Third, in a special way, I give tribute to my
incredible, selfless team at the National Treasury
and Planning who have worked tirelessly for very
long hours to ensure that this budget and
supporting documents were prepared in time as per
the legal requirements;
▪ Fourth, the Management and Staff of: Kenya
Revenue Authority; Central Bank of Kenya;
Attorney General Office, Commission on Revenue
Allocation; Financial Sector Regulators and the
various Agencies under the National Treasury and
Planning for their contributions and advice during
the budget process;
▪ Fifth, our Multilateral Development Partners,
especially the International Monetary Fund, the
World Bank, the African Development Bank, and all
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our Bilateral Development Partners for their
contribution to our development agenda through
various technical and financial support. Further, I
thank the private sector for their resilience and
continued contribution to the economic
development; and
▪ Sixth, my appreciation goes to the Fourth Estate for
their active reporting on economic and financial
developments as well as engagements on the FY
2021/22 budget process.
206. Lastly, Mr. Speaker, I remain grateful to my
family for their unfailing support, regular
encouragement and understanding as I steer my
responsibilities at the National Treasury and Planning at
critical time like this.
I Thank You All and May God bless Kenya.
Pause
Mr. Speaker, before I resume my seat, you will recall
in April 2021, I submitted to this House the budget
estimates and the Finance Bill, 2021, together with the
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accompanying documents as required by the Public
Finance Management Act, 2012. Today, I further submit
the following documents to this august House and
request that you graciously receive them:
1. Budget Statement for the FY 2021/22;
2. Budget Policy Statement 2021
3. Estimates of Revenue, Grants and Loans for the FY
2021/22 Budget;
4. Financial Statement for the FY 2021/22 Budget;
5. Medium Term Debt Management Strategy 2021;
6. Budget Highlights – The “Mwananchi” Guide for the
FY 2021/22 Budget; and
7. Statistical Annex to the Budget Statement for the
FY 2021/22.
THANK YOU, HONOURABLE SPEAKER
__________________ o ___________________
THE NATIONAL TREASURY AND PLANNING
JUNE 10, 2021
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STATEMENT DELIVERED TO THE NATIONAL
ASSEMBLY ON 10TH JUNE, 2021 BY HON. (AMB.)
UKUR YATANI, EGH, CABINET SECRETARY FOR THE
NATIONAL TREASURY AND PLANNING, REPUBLIC
OF KENYA, WHILE HIGHLIGHTING THE BUDGET
POLICY AND REVENUE RAISING MEASURES FOR
THE FINANCIAL YEAR 2021/22
1ST JULY 2021 TO 30TH JUNE, 2022
© Budget Statement 2021
To obtain copies of this statement, please contact:
The National Treasury and Planning
Treasury Building
P. O. Box 30007-00100
NAIROBI, KENYA
Tel: +254-20-2252-299
Fax: +254-20-341-082
The statement is available on: www.treasury.go.ke
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