Plan to im­prove tax col­lec­tion

Cape Times - - WORLD -

KENYA’S abil­ity to gen­er­ate higher rev­enue by in­tro­duc­ing new taxes may have reached a peak, ac­cord­ing to the World Bank.

Tax rev­enue as a ra­tio of gross do­mes­tic prod­uct fell to the low­est level in more than a decade in the fis­cal year through June and the only way to turn this around is through re­duc­ing ex­emp­tions, im­prov­ing col­lec­tion ad­min­is­tra­tion and ex­pand­ing the tax base, the US-based lender said.

“Given the con­tin­u­ous rev­enue de­cline at a time when nom­i­nal GDP is grow­ing, the abil­ity to raise more rev­enue could have plateaued and sig­nif­i­cant struc­tural re­forms may be needed to re­verse this wor­ry­ing trend,” the lender said in its eco­nomic up­date on Kenya re­leased yes­ter­day.

The gov­ern­ment seeks to col­lect 1.69 tril­lion shillings ($16.8 bil­lion) in the cur­rent fis­cal year to help nar­row the bud­get deficit to 5.9 per­cent of GDP from 6.9 per­cent.

To do this, the Trea­sury has in­tro­duced mea­sures in­clud­ing an 8 per­cent value-added tax on pe­tro­leum prod­ucts and dou­bled ex­cise levies on mo­bile-money trans­fers.

“What is hap­pen­ing right now is that you are in­creas­ing taxes on an al­ready-com­pli­ant pop­u­la­tion,” Ein­stein Ki­handa, chief ex­ec­u­tive of Nairobi-based ICEA Lion As­set Man­age­ment Ltd, said. “You can only mine so much and at some point you will start get­ting di­min­ish­ing re­turns.”

Lower prof­itabil­ity in the bank­ing sec­tor and an in­crease in the num­ber of cat­e­gories ex­empt from value-added tax con­trib­uted to a loss in rev­enue.

The state plans to over­haul its in­come-tax law and will soon in­tro­duce draft leg­is­la­tion to make col­lec­tion more ef­fi­cient, Trea­sury sec­re­tary Henry Rotich said. It may in­clude a 35 per­cent cor­po­rate-tax rate.

“We are ei­ther at break­ing point or very close,” Ki­handa said. “If you look at rev­enue growth, it clearly shows there is a need to de­lib­er­ately re­think how we go about levy­ing taxes.”

While the World Bank ex­pects slower eco­nomic growth in the sec­ond half, it raised Kenya’s 2018 fore­cast by 0.2 per­cent­age points to 5.7 per­cent. | Bloomberg

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