Nairobi — Kenyans have been given up to August 5 to submit their comments on the draft National Tax Policy which sets out broad parameters on tax policy and related tax matters in Kenya.
The policy is seen as part of reforms seeking to grow revenue and promote predictable tax environment for business to operate.
The National Treasury, through a notice, urged the public and private sector institutions as well as individuals to submit inputs/comments on the National Tax Policy, for consideration before finalization of the policy.
“The inputs/comments should be submitted in writing to the undersigned and a soft copy sent to the email address: budgetproposals@treasury.go.ke by 5th August 2022,” Cabinet Secretary Ukur Yattani said.
The policy also offers guidance on the collection, enforcement, and administration of tax laws, the basis for review and development of tax laws, and guidelines to stakeholders including investors on tax policy matters; guiding principles for the Kenyan tax system.
Under the proposed policy, Kenya’s tax laws will be reviewed once every five yours as the Government seeks to eliminate the unpredictability nature of tax policies which is seen as a hindrance to the country’s attractiveness to investors.
“To provide a reasonable degree of predictability on tax rates and tax bases, the Government will undertake stakeholder engagement before undertaking any amendment of the tax laws. The analysis should consider the impact of the proposed changes on tax revenue, development, investment, employment, and economic growth,” the draft policy reads in part.
This will be a change from the current regime where taxes are frequently amended through the Finance Act, the Government for instance in 2018 halved VAT on petroleum goods and a week ago, it similarly slashed VAT LPG gas by 50 percent.
In its proposal, Treasury wants to eliminate multiple rates and subject all goods be taxed to 16 percent rate with the preferential rate not be lowered below 12 percent.
“There shall be a single general rate for VAT and where a preferential rate is granted, it shall not be lower than 25 percent of the general rate,” the draft policy read.
This, according to treasury will minimise the high VAT tax expenditure incurred by the Government which is estimated at 2.2 percent of GDP as well as create a fair regime.
The National Treasury has decried that Kenya’s revenue yield is still below the desired East African Community target of 25 percent of GDP with the ordinary revenue as a percentage of GDP declining over the last ten years from a high of 18.2 percent in the FY 2013/14 to 13.8 percent in the FY 2020/21.
According to the Ukur-Yattani-led office, Kenya’s revenue performance is also being impacted by the expanding informal sector which is hard to tax, has low tax compliance, and complexity in taxing the emerging digital economy.
Tax incentives such as tax exemptions, tax deductions, allowances, tax deferral, and concessional tax rates were also listed as hindrances to revenue collection “as it erodes the tax base and causes the Government to forego tax revenue estimated at 2.96 percent of GDP as of 2020 compared to 2.9 percent average for African countries.”
“Although the incentives are aimed at promoting investments and providing relief to the low-income earners and vulnerable groups in the society, it impacts negatively on revenue mobilisation and implementation of the national development programmes,” the 46-page document read.