TAX NEWS - JUNE 2010

Audit firm pitches for low tax

by JUSTUS ONDARI, 03 June 2010 -- A reduction in personal taxes is one of the reforms that Finance Minister Uhuru Kenyatta should announce in his budget speech next week, an auditing firm has said.

According to Deloitte East Africa's consultants, a reduction of corporate tax and Value Added Tax (VAT) from 16 per cent to 14 per cent, backed by an increase in personal allowances and new environment taxes would stimulate consumption and in turn spur economic growth.

"International and local experience has shown that a reduction in the rate of taxes leads to increased revenue collection," said the firm's head of tax Nikhil Hira on Thursday ahead of the reading of the Budget on June 10.

He said the personal tax rate of 10-30 per cent under which a person with an income of about Sh40,000 per month qualifies for the maximum rate has been static since 2004 and needs reviewing.

He called for the widening of the tax band to redefine a middle-income earner to those earning about Sh80,000 per month.

"The people targeted in 2004 are worse off now. It is time we took a few of our less to do members of society off the tax net," Mr Hira said during a pre-budget press conference in Nairobi.

But the consultant's call on the lowering of VAT comes at a time at a time when there is speculation that Kenya may be forced to increase its rate to 18 per cent in line with its East African Community member states Tanzania and Uganda who have it at 18 per as the Common Market Protocol becomes effective on July 1.

Besides enhancing relief for home ownership, the consultants also called for a review of the corporate tax rate from 30 per cent.

"We need to have a range of taxation, say, between 20 per cent and 30 per cent whereby the lowest rate will apply to family-owned and small and medium businesses while big corporations pay the higher rates," he said.

Other measures include updating the capital expenditure allowances regulations, fine-tuning transfer pricing rules.

As the world gets environmentally conscious, Mr Hira said the the country should shift from direct to indirect taxation by targeting consumption rather than income.

"We must tax the bad and reward the good by invoking environmental taxes," he said about a move that could see firms and individuals utilising alternative energy and environment-friendly operations rewarded.

Deloitte also proposed reforms in the administration of taxes such as speeding up tax refunds by the Kenya Revenue Authority, charging interest on the refunds and limiting how far back the taxman can go when auditing a taxpayer unless where fraud is involved.