False Q Philip Muema is a Tax Partner responsible for Kenya. For further information contact him on pmuema@ kpmg. co. ke Tel: + 254– 20- 2806221 KPMG Kenya is a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. With 94,000 people worldwide, member firms provide audit, tax and advisory services from 717 cities in 148 countries. The views and opinions are those of the author and do not necessarily represent the views and opinions of KPMG BUDGET MATTERS Commentary on the East African Community 2008/ 09 budget promotion 121 msafiri I n keeping with tradition, 12 June 2008 marked another day when finance ministers from the East African Community ( EAC) simultaneously presented their 2008/ 09 budget proposals to their respective parliaments. These were presented against an impressive economic performance in 2007/ 08, with telecommunications, tourism and manufacturing sectors being the main drivers of the over 7% Gross Domestic Product growth. Unlike previous budgets, the 2008/ 09 proposals have a marked shift in the financing strategy and the EAC countries have opted to rely more on internal sources of finance as opposed to external financing comprised mainly of grants and foreign aid. Reliance on internally- generated revenue has provided food for thought to the finance technocrats as they seek to expand the tax base in order to collect much needed taxes, while soaring global petroleum and food prices have not made this task any easier. Taxation proposals Some taxation proposals were uniform across the board, especially those relating to customs duties. For example, customs duty on data processing machines was scrapped. There was also a move to remove duties on agricultural implements with the aim of ensuring food security for the region. There were also the usual culprits that suffer increases in excise duties year in year out – perhaps due to the fact that increases in taxes on such goods as beer and cigarettes does little in the way of decreasing demand and consumption. Little wonder why boozers are the greatest losers! There was a much anticipated equalization of the VAT rates within the EAC but this did not come to pass. As it is now, Kenya still enjoys the lowest VAT rate at 16% compared to 18% and 20% for Uganda and Tanzania respectively. Tanzania may perhaps be credited with the most innovative amendment that has been removed. In addition, rice and wheat has been zero- rated for VAT purposes and one hopes that these tax breaks will benefit the common man. The Government of Kenya also introduced a raft of changes in the financial services sector, including increasing the minimum core capital of banks and giving the Capital Markets Authority the necessary teeth – much like the Securities and Exchange Commission of the US – to carry out its capital markets policing mandate effectively. While the impressive growth of the telecommunications sector has attracted increased excise duties in Tanzania, satellite and wireless telephony has now been brought into the tax net in Kenya. The proposals in Tanzania and Kenya on VAT on exported services bear ambiguities, perhaps by sheer coincidence, on the applicable VAT rates and what exactly constitutes an exported service. While we are likely to see notices correcting these ambiguities, this may be the watershed for detailed place of supply rules for services in order to put this debate to rest, once and for all. The South African Revenue Service place of supply rules would be a good place to start for the Kenya and Tanzania Revenue Authorities. introduced the alternative minimum tax ( AMT); businesses that register losses for three consecutive years are now required to pay to the exchequer AMT. Much to the joy of most employees, the personal tax bands in Tanzania have been widened resulting in savings of up to 21% on the employees’ tax bill. This was a bold move given the need for greater revenues, and indeed Tanzania was the only country in the EAC to do so. The highlight of Uganda’s budget speech was the proposal to conclude and ratify double tax agreements with six countries. Once these proposals are adopted, Uganda will enjoy the most extensive tax treaty network within the EAC, something Kenya and Tanzania may need to consider emulating. Other noteworthy proposals included significant expenditure allocation to infrastructure development and tax exemption incentives for agro- processing industries outside Kampala. In addition, with petroleum production expected to start next year, petroleum production companies will now bear taxes on imports as the Government concessions on imports has come to an end. In Kenya, interesting developments include the flotation of sovereign bonds to finance the budget deficit. This will be a litmus test for the economic faith that both local and foreign investors have in the Government and is possibly the precursor to infrastructure and municipal bonds. In response to the sharp rise in the cost of living as a result of skyrocketing oil and food prices, import duty on wheat has been reduced while that on maize

False msafiri BUSINESS 122 of your business is not when you register a company or start trading – it is the moment when you determine, absolutely, completely and irrevocably that you are in business and that you will succeed, no matter what happens. You go into business because you want to be in business. You give yourself a goal, a target to push yourself along, but what you enjoy the most is doing business. How did you get started? I set out to make my first million by the time I was 25 and then retire. I did it by the time I was 23 and retirement was the last thing on my mind. It is true that your first million is the hardest. This is when you learn. You make mistakes. You fall. You lose everything. But you get up again and start all over. You learn some very tough lessons about people. You learn all the time and you apply your knowledge. You realise that underneath, all people are the same. Most of us want the same things in life, but, as a businessperson, you set out to achieve what you want with your own hands. How do you succeed? Success in business does not depend on how much money you have, your connections or your background. They can help but cannot guarantee success – look at the business failures of people who seem to have it all. The only thing that can guarantee success is how you think and how you act. That’s easy for you to say. You have been very successful – but it is very different for someone like me who knows nothing about business. I’m bound to fail aren’t I? The first thing you have to do is to get over your fear of business. People are terrified of business. They think you have to belong to a special club, or to have secret knowledge. They think that you must know all about business before you begin. This fear of doing business stops so many people from even trying. Are you saying that I can go into business without any experience or knowledge and still succeed? If you don’t know how to ride a bicycle, you will fall off! But if you keep up at it, you will gain the knowledge of riding by doing it. Soon riding will become so natural that you will forget that at one time you did not know how to ride. It is the same with business. You learn by doing. But you must have the desire – if your desire to ride a bicycle is not strong enough, you will give up after the first couple of falls and never learn to ride. If the desire is strong, you will succeed. It’s the same with business – you will be your own boss. You have to tell yourself to get up and try again, to work hard and above all to think hard. Is there no such thing as business knowledge? Of course there is – but it is mainly about processes or the study of successful ventures. To start off a small business, you do not need to go that far. But there are Banks and other financial institutions in more progressive African countries are willing to lend to the ‘ little guys’