PROPOSAL

Kenya to review tax plan every after 5- years

The country normally amends its tax every year through Finance Acts

In Summary
  • It is targeting collection of at least 25 per cent of the country's GDP every financial year
  • The plan is discouraging tax incentives, saying the government loses at three per cent of revenue to GDP or Sh300 billion every year.
The KRA headquarters at Times Tower in Nairobi
The KRA headquarters at Times Tower in Nairobi
Image: FILE

Kenya want to change its taxation plan every after five years to suit business demands while meeting at least 70 per cent of exchequer demands.

This proposal is contained in the country's draft National Tax Policy expected to promote a predictable tax environment for businesses to operate.

Traditionally, the country's revenue is always chasing expenditure, an aspect various experts and international bodies like World Bank have termed as unsustainable. 

"The provision under the policy is aimed at getting rid of the unpredictability nature of tax laws which is seen as a hindrance to the country’s attractiveness to investors,"National Treasury said. 

The proposed tax plan aims to keep a consistent pattern of revenue collection of at least 25 per cent of the country's GDP every financial year, up from the current average of 15 per cent in past five years.

Ordinary revenue as a percentage of GDP has been declining over the last ten years from a high of 18.2 per cent in the FY 2013/14 to 13.8 per cent in the FY 2020/21.

''The analysis should consider the impact of the proposed changes on tax revenue, development, investment, employment, and economic growth,” the draft policy reads in part.

It want the annual Finance Act done away with. The latest amendment for instance saw Value Added Tax on Liquified Petroleum Gas (LPG) slashed by a half, a move expected to deny the exchequer billions in revenue. 

Similarly, the Finance Act, 2018 led to the introduction of VAT on petroleum products, a move that has pushed up fuel prices, hurting consumers. 

The draft policy plan is discouraging tax incentives, saying the government loses at three per cent of revenue to GDP or Sh300 billion every year.

This is a high lose compared to the continental average of 2.8 per cent and global rate of 2.3 per cent.

“Although incentives are aimed at promoting investments and providing relief to the low-income earners and vulnerable groups in the society,  it impacts negatively on revenue mobilisation,'' the policy reads in part.

It therefore proposes creation of a criterion for granting tax incentives taking into consideration the costs and benefits of the incentives and also ensuring that incentives provided to specific sectors have a sunset where possible.

Furthermore, the policy want the tax bracket widened to ease pressure on few formal establishments.

It is counting on technology and lower tax regime to bring especially the informal sector into the bracket. 

''More energy should be directed into expanding informal sector which is hard to tax, and has low tax compliance and complexity to tax laws to the emerging digital economy,'' the policy directive leads. 

Last week, the revenue agency said it exceeded its annual collection target for the year ended June 30 for the first time in 14- years.

KRA collected Sh2.03 trillion against an original target of Sh1.88 trillion and two revised targets of Sh1.91 trillion and Sh1.97 trillion respectively. 

This is a 22.3 per cent improvement in revenue collection compared to the previous financial year when it collected a total of Sh1.66 trillion.

The performance was attributed to the implementation of key strategies as enshrined in KRA’s 8th Corporate Plan, tax policy measures and enhanced revenue administration.  

Under this plan, KRA targets to collect Sh6.831 trillion by the end of the financial Year 2023/2024.