11 June 2012

Kenya: State Urged to Review Income Tax Brackets

A Tax partner at the Deloitte audit firm Nikhil Hira has proposed that income tax bands be expanded to reflect fair distribution across all categories. Hira said the current taxation regime is punitive to low and medium income earners. "It is not fair for those earning just about Sh40,000 to be paying taxes at the highest level of 30 per cent," Hira said.

The are five prevailing tax bands with minimum Pay As You Earn tax bracket taking away 10 per cent from people earning Sh10164 and below, then it rises to 15 per cent for those earning 10165 to Sh19470. Those earning between Sh19740 and Sh29316 pay 20 per cent, while the Sh29317 up to 38892 earners have to part with 25 percent of it to government coffers. Anyone earning above 38893 falls into the highest tax band of 30 per cent .

Hira said if the tax bands are expanded, it would free capital for investment and personal development which would in turn create more taxable wealth across the country. He said the taxation regimes applied on small and medium enterprises should be unbundled and made clear in ordinary non-financial language for the operators to understand and comply.

Hira said the Finance bill set to be made public in parliament on Thursday should also spell out how new county governments will apply their taxation powers and clearly state which products or services will be subject to county level taxes to avoid arbitrary imposition of illegal taxes at county level, which may lead to harassment of businessmen when the new structure of government comes into force mid-way through the next financial year.

He faulted the intentions by the state to force business people to install GPRS enabled Electronic Tax Registers as a measure to widen the tax net and tighten administration of taxes. "The tax act published in April indicates that the GPRS enabled ETRs were supposed to have been in place by second of May 2012, meaning by the time we knew of it the deadline had already passed. Not even Kenya Revenue Authority knew of it before that and its the implementing agency, and we are not sure how it was supposed to work," he said.

He said although the idea is good, the cost of implementing it is high because business people would have to purchase new machines. Hira said the proposal should be evaluated through public engagement and businesses given time to comply at their own pace or the proposal be scrapped all together. Meanwhile Hira wants the government to shift from giving tax incentives for those who invest outside the major and instead engage with potential investors under the public private partnerships.

This is because the target areas lack infrastructure including water, electricity, roads and security, all vital elements for the private investors to venture with large capital intensive projects. According to Hira, so far the incentives have not the desired results and will not unless the government partners with investors as a way of instilling confidence.

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