TAX NEWS - June 2010

Kenya Tax: Reforms needed at KRA to boost revenue collection

Kenya government recently unveiled an ambitious budget for the 2010/11 financial that was close to one trillion Kenyan shillings.

As usual, the goodies were plenty with priority sectors including free Primary and secondary education, the constituency development fund kitty, interventions in ASAL regions as well as rural roads.

What's worrying however, is that the Kenya Revenue Authority plans to collect only about Ksh585 billion ($7.26 billion) by the end of June, which raises questions on how the government hopes to finance the huge budget deficit.

On the other hand, KRA is losing millions due to poor revenue collection methods, resulting partly from an outdated model of operations that the institution continues to use.

For revenue streams to grow, it is imperative that KRA opens tax offices within potential zones which would cut tax evasion by at least half.

Tax evasion in Kenya, like Greece, is concentrated in the property sub sector and informal businesses, while Other tax evaders are in the diaspora.

KRA needs to open an office in Nairobi's Eastleigh region in order to catch the numerous traders there who evade taxes, and money is needed for that.

The same case goes for Westlands and Parklands regions where property barons are developing the area.

Other offices should be opened where rental houses have been developed over the years. And that is greatest in Nairobi and Mombasa.

Greece has consistently failed to collect property taxes over the years and the built-up deficits almost caused the economy to collapse recently.

Unless KRA is reformed to catch tax evaders, we are headed the same direction.

Therefore, Finance Minister Uhuru Kenyatta must go back to the drawing board and look for money to fund reforms at KRA so that the country can achieve faster growth in line with vision 2030.

The Integrated Tax Management system will help but if you don't know where the tax payer is, how will you collect the taxes due? Even the long arm of the law will find itself mightily constrained!

Is the KRA board up to the task because that could be where the rain started beating us.