EAC firms pray for income tax drops

May 29, 2012

, NAIROBI, Kenya, May 29 – Companies are keen to have their agenda pushed ahead of the 2012/2013 Budget reading expected next month, with the reduction of corporate income tax rates topping the list.

In the latest Deloitte survey that looked at budget views from companies across the region, 84 percent of respondents wanted to see the rates come down.

Nikhil Hira, a partner in Deloitte’s Tax department said the views do not come as a surprise, but he added that if a reduction was not feasible, the Treasury should consider lowering the rate for small and medium enterprises (SME).

“What I would advocate for is reduced rates for the SME sector because the engine of our growth is going to come from that sector. When you look at the UK they have two lower rates for the SMEs,” he said.

The general corporate income tax rate currently stands at 30 percent with a branch of a foreign company taxed at 37.5 percent.

Newly listed companies however enjoy a reduced rate between 20 and 27 percent, for three to five years following the year of listing.

In the survey 100 percent of respondents wanted the government to legislate a time frame within which tax refunds must be paid, while 56 percent preferred a Value Added Tax (VAT) rate lower than 16 percent.

“In a time when interest rates are as high as they are, to have billions of shillings tied up in tax refunds that are not coming back is detrimental to our economy. The new VAT Bill should have a provision for the KRA to pay interest on late refunds,” he said.

Such a move, Hira said should give the revenue authority enough of an incentive to pay refunds on time.

The discontinuation of withholding VAT in July last year, resulted in excess collection and an increase in claims to the current Sh24 billion.

Other concerns on the Budget for respondents were reductions in fuel prices, cost of doing business in the region, infrastructure development, tackling corruption and boosting of agriculture production.

The survey also analysed the demographics and top issues facing Chief Financial Officers (CFO) in the region.

Increased administrative tasks with insufficient support staff, pressure from poor company performance and changing regulatory requirements were the prevailing issues for most CFOs.

At least 63 percent of respondents had cautious optimism on the business environment in 2012, while 44 percent were expectant for a somewhat better company performance.

With 41 percent of the CFOs interviewed coming from the banking sector, almost half expected interest rates to range between 15 and 20 percent in the next 12 months, with the general consensus that the current short term rates were very high.

The high interest rates in the region made most CFOs shy away from funding through borrowing with 69 percent not expecting borrowing to increase in the next 12 months and 55 percent preferring internal funding.

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