, NAIROBI, Kenya, Jun 10 – The government should come up with tax measures that will see the informal sector enter the tax bracket if it is to reduce the country’s revenue deficit.
PKF Kenya tax partner Michael Mburugu says the Kenya Revenue Authority (KRA) can be able to achieve this by introducing mandatory taxes apart from those paid for licenses and business permits.
Tax revenue collection remains at 25 percent of the Gross Domestic Product (GDP) which could be raised up to 70 percent if the informal sector is fully included.
“More needs to be done in order to widen the tax base. The government should eliminate revenue leakages within its systems and improve the compliance levels through the registration of the SMEs and coming up with easier and friendlier modes of paying taxes,” Mburugu says.
On Thursday this week, Treasury Cabinet Secretary Henry Rotich is expected to tell the country how the government intends to finance the Sh1.8 trillion budget for the 2014/2015 financial year.
The 2014/2015 budget projects a revenue deficit of Sh342.6 billion.
“We continue to see those in the formal sector paying heavy taxes, yet those in the informal sector earn so much, use the country’s resources heavily but are not fully in the tax bracket. I know the issue of turnover tax did not work, but we can do something,” he urged.
KRA has been challenged not continue depending on the revenue growth through the VAT Act 2013 as it has led to high cost of living hence the need to review the Act. “The government need to address specific issues affecting core sectors and ultimately the ordinary Kenyans.”
Other suggested measures to Rotich are the review of Income Tax Act which was enacted in 1974 and the Customs and Excise Act of 1978.
“This will help improve on tax legislation and administration. The new tax statutes should be friendly and easy to comply with,” PKF Senior Tax Manager George Maina said. “The government should however involve the public and the business community in particular in enacting the new tax laws.”
The analysts have also put emphasis on the mining sector which they say need more tax incentives.
Maina says recent announcement by multinationals oil explorer and mining companies is a major breakthrough in the exploration activities in Kenya and maybe good news for the economy in long term.
“The government should come up with incentives that encourage research, training and development as well as ensuring tax savings for Kenyan companies eyeing this industry,” Maina said.