We learn in theory that tax avoidance is not the same thing as
tax evasion and carries with it no ignominy. And also that when taxation
comes into conflict with the basic forces of human nature, the taxman
is engaged in a losing battle.
Indeed, the law allows
every citizen to organise his activities the way he chooses to make it
possible for him reduce the burden of taxation to the minimum. When
citizens are faced with high taxes, they look for tax shelters.
I
am not surprised that investors in both the property and capital
markets sectors are employing tax avoidance tactics in the rush to beat
the January 1 deadline for the introduction of the capital gains tax.
If
you are observant, you will have noticed an unprecedented spike in the
number of new accounts for holding stocks and shares, better known by
the acronym CD accounts. Investors have opened CD accounts in large
numbers.
Why do I say that it is a tax avoidance
tactic? Because by opening a completely new CD account and transferring
your money there, it is possible to disguise capital gains.
Similar
tax avoidance tactics are being applied in the property sector, where
investors have also rushed to beat the January 1 deadline by signing
sales and purchase agreements in advance of the new year.
The
property sector and the capital markets were among the main reasons
the capital gains tax was introduced. Too much money and wealth have
been flowing in these two sectors. We have seen an explosive growth in
the property markets.
BIG RIDDLE
The
big riddle has been that despite the explosive growth in the property
sector, the number of mortgages has continued to stagnate. Tax policy
experts suspect that the rich are sheltering their wealth in big
property projects, hence the decision to introduce the capital gains
tax.
It is an old principle in taxation: tax must
follow where the money is. However, the need to cast the net as wide as
possible to trap the big money being made in property and capital
markets was only one of the factors.
Big Brother has
also calculated that by introducing the capital gains tax, he will have
opened new opportunities for mining third-party data. The calculation by
the Kenya Revenue Authority (KRA) is that as it collects revenue from
capital gains tax, it will now be in a better position to track
transactions and follow tax cheats.
Big Brother has
also calculated that by introducing the capital gains tax, he will have
opened new opportunities for mining third-party data. The calculation by
the Kenya Revenue Authority (KRA) is that as it collects revenue from
capital gains tax, it will now be in a better position to track
transactions and follow tax cheats.
Secondly, the
government is in dire need of new revenue-raising measures. Indeed, As
at 30 June, total revenue amounted to Sh1,001.4 billion, against a
target of Sh1,060.1 billion, resulting in an underperformance of Sh58.7
billion.
The underperformance was in respect of Sh32
billion in ordinary revenue — import duties, value-added tax (VAT),
income taxes, and excise duties.
There was also an
underperformance of Sh52.7 billion in appropriations in aid, mainly fees
and charges and revenues from loans committed by donors for specific
projects.
0.2 PER CENT OF GDP
With
the capital gains tax, the government is estimating that it will raise
an equivalent of 0. 2 per cent of GDP in additional revenues.
Another key revenue-raising measure that the government intends to take in the new year is the new VAT withholding tax.
Another key revenue-raising measure that the government intends to take in the new year is the new VAT withholding tax.
This
tax was in existence before, but was scrapped in July 2010 on the
grounds that it was worsening the problem of unhealthy accumulation of
VAT refunds and arrears.
The point of departure is
that while the VAT withholding tax was charged at the standard VAT level
of 16 per cent at that time, it is now being introduced at 6 per cent.
The government expects to raise additional revenue equivalent to 0.3 per cent of GDP from this new tax.
We
take pride that our economy did not suffer from the impact of the
global financial crisis, but we now have an economy that is vulnerable
to external shocks.
Kenya’s growing integration in the
global markets, while creating new opportunities to borrow through
sovereign bonds, has left us vulnerable to sentiment within
international financial markets.
Secondly, the
government is in dire need of new revenue-raising measures. Indeed, As
at 30 June, total revenue amounted to Sh1,001.4 billion, against a
target of Sh1,060.1 billion, resulting in an underperformance of Sh58.7
billion.
The underperformance was in respect of Sh32
billion in ordinary revenue — import duties, value-added tax (VAT),
income taxes, and excise duties.
There was also an
underperformance of Sh52.7 billion in appropriations in aid, mainly fees
and charges and revenues from loans committed by donors for specific
projects.
With the capital gains tax, the government is
estimating that it will raise an equivalent of 0. 2 per cent of GDP in
additional revenues.
Another key revenue-raising measure that the government intends to take in the new year is the new VAT withholding tax.
Another key revenue-raising measure that the government intends to take in the new year is the new VAT withholding tax.
This
tax was in existence before, but was scrapped in July 2010 on the
grounds that it was worsening the problem of unhealthy accumulation of
VAT refunds and arrears.
The point of departure is
that while the VAT withholding tax was charged at the standard VAT level
of 16 per cent at that time, it is now being introduced at 6 per cent.
The government expects to raise additional revenue equivalent to 0.3 per cent of GDP from this new tax.
We
take pride that our economy did not suffer from the impact of the
global financial crisis, but we now have an economy that is vulnerable
to external shocks.
Kenya’s growing integration in the
global markets, while creating new opportunities to borrow through
sovereign bonds, has left us vulnerable to sentiment within
international financial markets.
jkisero@ke.nationmedia.com
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