State urged ‘to fish deep’ to meet budget

June 12, 2012
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Kenya’s regional counterparts such as Uganda received 15 percent of tax revenue from Capital Gains Tax last year/FILE

, NAIROBI, Kenya, Jun 12 – The government should exploit untapped taxable areas of the economy to help fund the country’s ambitious expenditure programs in the 2012/13 budget.

PKF Eastern Africa Regional Director for Tax Martin Kisuu said the current tax structure has been stretched and is not sustainable in growing revenue yields going forward.

He added that ‘forgotten levies’ such as Capital Gains Tax that was suspended 25 years ago could boost tax revenue collection domestically, especially as Kenya develops its nascent oil sector.

“The level of wealth that is moving around this country is enormous in real estate, in the stock market and mergers and acquisitions. There are people holding licenses to drill oil, which can be sold for billions of dollars, and there is no framework to tax such gains,” he said.

Kenya’s regional counterparts such as Uganda received 15 percent of tax revenue from Capital Gains Tax last year.

Another area is idle land, which Kisuu said needs heavy and punitive taxation, to deal with the issue of holding speculative land.

The VAT Bill 2011 is one piece of legislation that government hopes will enable them to increase collection. However, some changes within it have deemed it a controversial tax law.

“If it comes as it is, the VAT Bill is a very retrogressive tax law, because it is essentially going to tax poverty and hurt a lot of economic sectors. It is going to, for the first time, impose VAT on fertilizer, pesticides and inputs needed in agricultural production,” Kisuu said.

Such measures, he added, undermine growth in agriculture, which remains Kenya’s single biggest sector contributing 24 percent to GDP.

PKF Eastern Africa CEO Atul Shah said as the national debt level hits 51 percent, the government will also need to control its spiralling expenditure that increased by 26 percent in last year’s budget.

“We are now getting close to a fairly high borrowing country situation and with uncontrolled government expenditure and no significant resources of revenue,” he explained.

The country’s debt service grew by 75 percent from last year’s budget accounting for Sh303 billion of the 2012/13 Sh1.4 trillion budget.

Moving forward, the analysts say re-emphasis on agriculture, increased investment in energy and completion of the ongoing judicial and police reforms will be necessary measures to be taken in revamping the government’s spending and improving revenue generation.

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