17 May 2018

Kenya: KRA Should Change Tack on Tax Collection

editorial

The challenge facing the National Treasury is the inability to raise enough taxes to service the annual budget. For years, the Kenya Revenue Authority has failed to meet tax collection targets. Last year, the KRA missed the target by some Sh60 billion. Factors like a sluggish economy, unemployment and, prominently, tax evasion and corruption, are to blame.

Now, the National Treasury is seeking new measures to up tax collections. It has published a new law that makes several proposals to raise revenues. One of the suggestions is to introduce a 35 per cent top tax for high-income earners. The model is to get top earners to contribute more and cushion the low-end earners.

But this presents a different challenge. It is only a small percentage of workers who earn the top dollar -- such that targeting those raking in at least Sh750,000 a month may not bring in much.

LOWLY PAID

By and large, the bulk of workers are lowly paid.

Indeed, this model goes to demonstrate a major weakness in the tax system -- namely; targeting only a small cadre, mainly wage earners, while leaving out a fairly big population.

Raising tax portfolio through constant increases for just a small group of people may work, but up to a point; thereafter, it becomes untenable and even punitive, hence counter-productive.

This is why we challenge the authorities to seek other ways of raising taxes.

TAX EVASION

Tax evasion is rampant and the authorities pretty well know about it. It is even worse that some tax collectors collude with potentially large taxpayers to avoid paying the right rates. Some policies and regulations are equally restrictive and hamper business; hence, they have a negative impact on incomes and, subsequently, tax revenues.

The National Treasury must work on economic recovery and growth to inspire trade, jobs and wealth creation. This will, in turn, generate new and incremental incomes and boost tax collections.

KRA must expand the tax base and curb evasion. Reforming taxation laws is vital, but it should be done in a way that expands the tax base rather punishing a few.

Kenya

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