TAX NEWS - JUNE 2010

Kenya Tax: Make tax a business incentive

As we prepare for the 2010/11 financial year budget, Kenya Minister for Finance may have to expand the objectives of his estimates.

The budget has been traditionally viewed as an income and expenditure document for the government. The minister needs to make a budget that not only harmonises tax regimes in the East Africa community countries but also acts as a tool to give Kenya a competitive edge over other countries.

The Kenyan ranking for ease of paying taxes has been dropping. Some of the reasons for this decline is the tremendous improvements made by other the global economies.

This, coupled with, a tax system riddled with multiple tax payments each month, slow tax refunds and a tax net that is not wide enough means that Kenya has a lot of work to do to improve its standing.


Improve revenue

The budget should not only improve revenue collection but also ensure the sustainability and survival of the tax payers. Kenya business community is looking for more friendly and easy tax regimes.

The government needs a budget that will create a conducive investment environment. Spending on priority areas like infrastructure, education, health, energy and technology will act as a booster for our withering economy.

The upcoming financial estimates should as a matter of urgency propose to reduce corporate tax rate hence increasing disposable income that can be used for reinvestment, improve cash flow management, reduce financing costs etc.

Tax rate reduction will have a positive impact for the government and business if tax reforms are looked at in its entirety.

High rate of taxation on employees' income has continued to see their living standards at the bottom. There is an urgent need to widen the tax bracket which will in effect increase disposable income by staff.

This will ensure good food and housing. The government will get its taxes from the landlords and business people. Employees need to save and invest which are sure ways of breaking the vicious cycle of poverty.


Critical look

The government may have to critically look at VAT (Value Added Tax) and the slow refund process.

Previously, ultimatums have been set and even presidential directives given but the process is yet to improve.

Authorities may have to allow immediate set off of VAT refunds against other taxes like PAYE, installment taxes and withholding tax pending audits. Delayed refunds are hurting investors and making them less competitive hence lowering their profits.

Kenya needs to compensate investors who act as its agents in collection of taxes. It has been empirically proven that it takes a sizeable number of hours to comply and facilitate collection and payment of all taxes.

These labour hours could be directed to more productive assignments. The government should pay its agents a commission of taxes collected to motivate compliance.

Currently, we have experienced good harvests resulting from favourable weather conditions. These blessings have in turn become a curse to our farmers who have nowhere to sell or store their bumper produce.


Any investor

The government should, through the budget, exempt from taxes any investor who have sustainable remedies to our problems. For example when milk was overflowing, we could source an investor who could purchase all our excess produce and convert it to powder for future use.

The investor should have been given a tax holiday and the government ensured faster processing of registration and all legal requirements.

An efficient tax system produces better and more responsible tax citizens as well as serving as an incentive to foreign investors.