Kenya taxation measures faulted

June 14, 2010

, NAIROBI, Kenya, Jun 14 – Finance Minister Uhuru Kenyatta has been faulted for failing to be bold enough to come up with tax measures in the 2010/2011 budget that could have increased disposable incomes for the average Kenyan.

Deloitte Kenya Tax Leader Nikhil Hira said on Monday that the minister should not have shied away from proposing the widening of the tax bracket and the reduction of the Value Added Tax (VAT) which would have left Kenyans with more money to spend. This would in turn have given them flexibility for savings and investments.

“An opportunity was missed to boost spending and consumption. I would also have reduced the VAT rate by a percent or two to assist people to spend more and I would have done it in conjunction with the widening of the income tax brackets,” he said.

Prior to the unveiling of the budget last Thursday, many tax experts had predicted that the government would raise the threshold to marginal tax rates thus easing the tax burden on many Kenyans who are some of the highly taxed people in the world.

Currently, anyone earning more than Sh12,196 per month is taxed while those whose income is above Sh38,893 attract a maximum tax rate of 30 percent. These bands were last reviewed in 2005.

This projection had been further supported by the move by the Kenya National Bureau of Statistics to change its classification by raising the minimum amount that attracts tax from Sh10,000 per month to Sh23,671.

Earlier in the year, Finance Permanent Secretary Joseph Kinyua had been quoted in a section of the press saying that they were working on a new tax structure which he had promised would be ready before the budget was read. This did not however materialise and it looks like Kenyans, particularly the low income earners, will continue to shoulder the heavy tax burden.

During a post budget analysis, Mr Hira said while the proposal to overhaul the VAT Act was welcome, it should have been done together with the three decades old-Income Tax Act to address the realities of the business environment.

“He (Minister) said there is going to be a committee that will deal with this but I’m hoping that it is not going to be just Treasury and KRA (Kenya Revenue Authority) officials. I hope the business community will have a seat there to look at the re-write,” the tax analyst added.

He was also skeptical as to whether a proposal for a tax amnesty extended to Kenyans living abroad in order to encourage them to declare their incomes, would yield much.

“In Kenya, the only source of income that you have which is taxed on a worldwide basis is employment income. You will get credit in some cases when you bring it back. I personally think that this is completely misplaced. I don’t think there will be a huge influx of declaring income that you have sitting abroad,” he said.

Speaking at the same forum Stock Market analyst Aly Khan Satchu said while most of the proposals in the budget such as the one to increase by 20 percent the funds towards infrastructure development were commendable, there is a need to have targeted interventions that have a trickle down effect to the grass root level.

This could for example be through the implementation of innovative solutions and tools such as the recently launched M-Kesho and the money transfer service M-Pesa.

Last year, 12 of the country’s GDP went through M-Pesa, he said which goes to show the popularity and importance of the mobile phone towards Kenya’s economic growth.

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