The sale of Safaricom and Kenya Pipeline Company (KPC) will be key in raising cash to help Treasury Cabinet Secretary John Mbadi fund Sh4.24 trillion budget for the year starting July in the wake of a slowdown in new and higher taxes.
The Treasury targets to raise nearly Sh2.76 trillion from ordinary revenue —taxes, return on government investments, levies, fines, forfeitures and rent on buildings— a growth of 6.82 percent over Sh2.58 trillion estimates for the current financial year ending this month.
The modest rise in projected revenue has come at a time the Treasury has said growth in tax receipts in upcoming financial year largely hinges on expanding taxpayer base and leveraging on technology to catch tax cheats as well as reducing tax benefits.
The Treasury is further seeking to move a raft of goods considered essentials such animal feeds, materials for manufacturing pharmaceutical products, solar and lithium batteries and electric vehicles from value added tax (VAT) zero-rated category to exempt.
“In fact we were very conservative. We should have taken all goods from zero-rated to exempt. The reasoning is very simple. When you zero-rate a commodity, you allow for a tax refund. That, theoretically, should make the product cheaper than when the product is exempt. However, experience and practice show us that that benefit is never passed to the consumers,” Mr Mbadi said.
“Secondly and the worst is that, it (VAT zero-rating) is abused. There are a lot of fictitious refunds at KRA. People sell to themselves by creating fake companies which you will never find anywhere using what we call missing trader. Our policy is to reduce tax expenditure.”
The Treasury is further targeting Sh559.9 billion from appropriations-in-aid — revenues collected by various Government Ministries, Departments and Agencies (MDAs) when discharging services such as charges for processing of passports and, birth and death certificates. This is a 15.02 percent jump from Sh486.8 billion estimates for current fiscal year.
Total revenues, including appropriations-in-aid, for the 2025-26 financial year are projected at Sh3.32 trillion, a growth of 8.12 percent over Sh3.07 trillion projection for the current year.
That will leave a deficit of Sh876.1 billion which will be funded through Sh591.9 billion domestic borrowing and Sh284.2 billion foreign debt.
Treasury has projected Sh46.9 billion inflows from grants, a drop of 10.84 percent from the Sh52.6 billion estimates for the prevailing year.
As part of revenue mobilisation measures, the Treasury plans to fast-track the long-delayed privatisation programme which are expected to yield Sh149 billion for budgetary support.
The Treasury has singled out KPC as a low-hanging fruit in the 2023 Privatisation Programme which has 11 state-run firms earmarked for sale.
“We are moving quickly and have signed some documents to allow for privatization of KPC to be done. Why we say KPC is ready is because one, its profit making and second, it is already a limited liability company,” Mr Mbadi told the Business Daily in May. “There is talk that if we could offload more of our ownership of Safaricom, where we are likely to get the Sh149 billion through privatization in the 2025/26 financial year.”
KPC is a 100 percent owned by the government, while taxpayers control a 35 percent shareholding in Safaricom worth nearly Sh334.44 billion after selling a 25 percent stake to investors via an initial public offering (IPO) in 2008.
A sale of a 10 percent stake, or about 4.0 million shares, in Safaricom will, for example, yield nearly Sh95.56 billion at prevailing price of Sh23.85 per share on the Nairobi Securities Exchange, and cut Treasury’s stake to 25 percent.
The windfall will even be higher if the shares were sold to a strategic investor, like a private equity firm, who will offer a premium price. KPC, on the other hand, owns a pipeline network, storage and loading facilities for transportation, storage and distribution of petroleum products valued at more than Sh120 billion.
The firm’s revenues increased 14.6 percent to Sh35.37 billion in the year ended June 2024 from Sh30.86 billion in the prior year, returning a profit of Sh6.87 billion — a 52.6 percent jump from Sh4.49 billion the previous financial year.
The planned sale of State-Owned Enterprises (SOEs) to private investors has faced a raft of huddles, some which remain unresolved, including determination of court cases.
Some of the firms which were initially lined up to be auctioned to investors are Kenyatta International Convention Centre (KICC), New KCC, National Oil Corporation of Kenya and Kenya Seed Company.
Others are Kenya Vehicle Manufacturers Limited (KVM), Numerical Machining Complex Ltd, Rivatex East Africa, Kenya Literature Bureau, Mwea Rice Mills Ltd and Kenya Literature Bureau.
