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December 10, 2018

Adan lobbies for corporate tax shave to reduce business costs

Cabinet Secretary for EAC and regional development Adan Mohammed speaks during the official launch of Auto Springs company in Limuru on May 8 / EZEKIEL AMING’A
Cabinet Secretary for EAC and regional development Adan Mohammed speaks during the official launch of Auto Springs company in Limuru on May 8 / EZEKIEL AMING’A

East Africa Community Cabinet Secretary Adan Mohammed is proposing a cut in corporate tax from 30 percent to 25 percent, to attract foreign investors.

If adopted, corporate firms such as limited companies, trusts and co-operatives will enjoy a five percent drop in the amount they are taxed on their earnings.

The cut, Mohammed said would further boost the growth of small and medium enterprises.

“We are working on eliminating numerous levies that make us uncompetitive and we hope this will make it easy to do business especially for the small and medium businesses,” Mohammed said

Aden's proposal is 10 per cent lower than the 35 per cent made by the National Treasury in the 2018/2019 budget statement.

A World Bank report dubbed Africa Paying Taxes released yesterday shows that Kenya climbed up the ranks in the paying taxes indicator to position 91 from 125 last year.

The report released by audit and tax consultancy firm PwC shows that that Kenya has reduced its tax procedures from 14 to 25.

“Kenya is aggressively pursuing reduction in the timing taken to pay taxes through the i-tax system from the current 180 hours measured by the World Bank to less than 100 hours,” says the report.

According to PKF Tax consultant Michael Mburugu, Mohammed's proposal is a good incentive but will not make a big difference in the business environment.

“If business are struggling, then they will have no profits to be taxed, the government should first work on reducing the cost of electricity and improving infrastructure,” Mburugu said.

Kenya Revenue Authority plans to introduce a 15 per cent presumptive tax on all SMEs effective January.

The tax will be paid before the renewal of their single business permits or trading licenses from their respective county governments.

In an earlier interview with the Star, KRA domestic tax manager Judith Njagi said the tax will be levied on an annual basis.

“The new tax is meant to enlarge the tax bracket in the informal sector, it excludes property owners, companies and any other firms registered for Value Added Tax,” Njagi said.

Currently, businesses which largely fall within the informal sector are paying three per cent of their gross sales as Turnover tax on a quarterly basis. Presumptive tax is set to replace the Turnover tax.

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