TAX NEWS - JUNE 2010

Kenya Tax: Uhuru to walk tight tax rope in Budget

When Finance Minister Uhuru Kenyatta reads the 2010/2011 Budget on Thursday, he will be trying to consolidate the taxpayers' base, even as he tries to bring others into the bracket.

Over the years, the economy has lost colossal revenue through people who have escaped the direct tax dragnet.

Written laws aid some while others have taken advantage of the loopholes in the tax regime. This has left many Kenyans either unaware of tax payment procedures or simply determined to evade taxation.

This effectively places the tax burden on the shoulders of a few. Economic experts estimate that if all Kenyans were to pay taxes as required, the current revenue from the Domestic Taxes Department would, in the least, double.

They point to the fact that the revenue has been on a steady increase, the many loopholes and other challenges notwithstanding.

In the 2008/09 financial year, the Kenya Revenue Authority collected Sh481 billion against the backdrop of the global economic meltdown and high inflation.

The authority netted Sh433.9 billion in the 2007/2008 fiscal year, despite post-election violence that affected the growth of most sectors. KRA is targeting Sh545.2 billion in the 2009/2010 fiscal year.


Non-taxpayers

Kenya Revenue Authority Commissioner General Michael Waweru, in a past interview, described non-taxpayers as "parasites living on other people's sweat".

"Our position is that all Kenyans must pay for the services they receive and all Kenyans have to support us in this, including those who are in the informal sector," says Waweru.

But experts argue the reason for the small tax bracket could be because this is a largely a low-income economy.

"This makes it difficult to impose some taxes. The larger the size of the informal economy, the more challenging taxation becomes," argue economists Eliud Moyi and Eric Ronge in a 2006 research.

Leading the pack of the so-called non-taxpayers are the 222 MPs who include President Kibaki, Prime Minister Raila Odinga, and Vice-President Kalonzo Musyoka.

Constitutional office holders also enjoy untaxed allowances. They include the Attorney General, judges, and commissioners of Kenya Anti-Corruption Commission, Interim Independent Electoral Commission, and members of the Public Service Commission.

However, civil society activist, Okiya Okoiti Omtata, says that if judges are taxed, MPs could use it to punish them if they make rulings that are unpopular with the legislators.

Apart from the leaders, the law demands that landlords file returns and paytaxes on the rental income but the small-scale landlords are left to enjoy their incomes tax-free. Shopkeepers, hawkers and jua kali artisans are also supposed to file tax returns but they do not.

Government efforts to bring hawkers into the tax bracket have often been resisted.

Last year, hawkers in Mombasa burnt a new fire engine in Mombasa valued at Sh45 million.

Mombasa Town Clerk Tubman Otieno says his office is in talks with officials of the more than 1,270 hawkers to strike a balance that will see hawkers pay tax.