ActionAid International Head of Policy and Programs in Kenya Makena Mwobobia says that the country loses about Sh100 billion a year on these tax incentives.
Mwobobia said that investors no longer look for tax incentives but rather want proper infrastructure.
“Government needs to provide these needs but shall we deliver such infrastructure if you are busy asking for tax exemptions? Where will we get the money?” she asked.
She revealed that tax incentives ranked 17th behind a host of factors including exchange rates, utility and transport infrastructure.
“In the World Bank‘s recent investor Motivation Survey for the East African Community, 93 percent of investors said that they would have invested anyway, had tax incentives not been on offer,” she said.
She also said that governments need to cooperate with each other at regional level to develop a coordinated approach to tax competition.
“The East African Community‘s proposed code of conduct on harmful tax competition is an opportunity to put in place a comparable but more robust framework,” she said.
She said that tax incentives, are to be accompanied by transparency and cooperation for them to have a positive impact.
“The government should systematically count the full cost of tax incentives through published tax expenditure reports and reports published annually at the same time as the budget to inform debate on the governments plan,” she said.
Mwobobia also noted that the government should also ensure that all phases of new incentives require parliamentary approval,
She added that any new incentives offered is grounded in legislation which makes it available to all qualifying investors, foreign and domestic which would mean an end to discretionary tax incentives.
“The government should also ensure that tax incentives are audited to check that the investment for which an incentive is offered has actually been carried out,” she stated.
Mwobobia said that tax incentives also corrode confidence in the tax system, damaging “tax morale”.
“Tax morale is especially damaged by stories of influential people and companies exploiting their position to gain a tax advantage,” she said.