During the 2018/2019 budget announcement last week, the Finance Cabinet Secretary Henry Rotich introduced a ‘Robin Hood’ tax of 0.05 per cent on transactions of more than Sh500,000 made through financial institutions.
The ‘Robin Hood’ tax, first introduced by James Tobin in the 1970s, entails taking from the rich to help the poor. Basically, the tax is charged on all financial transactions such as bonds, derivatives, and stocks.
Some of the countries that have implemented the ‘Robin Hood’ tax include France, Germany, and Italy.
The Rate Cap Law
In his budget speech, the CS also proposed repealing the rate cap law which was introduced in 2016 through the Banking Amendment Act. The law caps the interest rate financial institutions can charge their customers at four percentage points above the central bank rate (CBR).
“I propose to amend the Banking Amendment Act 2016 by repealing section 33b of the said act,” he said. “This is to enable banks and lenders to provide more credit, especially to the borrowers they consider riskier.”
Mr Rotich targeted a 5.7 per cent of GDP budget deficit for the next financial year which begins in July compared to 7.2 per cent of GDP for 2017/2018. Additionally, the CS forecasted a surge of 17.5 per cent in tax revenues to Sh1.9 trillion which is equivalent to 20 per cent of gross domestic product (GDP).
The CS also withdrew an earlier proposal to increase the tax for high-income earners (over Sh750,000) to 35 per cent from 30 per cent due to public outcry.
