By CHARLES MWANIKI and BRIAN NGUGI
In Summary
Highly paid Kenyans are headed for more tax pain in
the coming year when the Treasury is expected to increase income tax
bands “to reflect the inflationary impact of annual salary increments.”
Treasury secretary Henry Rotich said on Tuesday that a
review of the income tax law to reflect the new reality would come in
the next Finance Bill—expected early next year.
Tax experts, however, warned that an Income Tax
review remains a hot political issue that will be difficult to implement
in an election year. The General Election is set to be held next
August.
The planned review follows the Treasury’s recent
offer of tax relief to the lowest income earners, who are expected to be
spared any fresh pain.
“We want to make the income tax law progressive. We
have seen salaries change with inflation while the tax bands have
remained the same for a long time. The adjustments we did in the last
Finance Bill were just for the lower income earners, but this time we
will have more comprehensive changes,” said Mr Rotich, without
indicating the extent of the adjustments.
“I do not yet know exactly how the tax bands will
shift given that this review is still work in progress, but it should be
largely based on the per capita income,” he said.
The income tax law is the only major tax
legislation that has not been reviewed comprehensively in the past three
years. The government reviewed the VAT Act in 2014, and followed it up
with a review of the Excise Duty Act last year.
In the June reforms, Mr Rotich widened the lower
tax bands by 10 per cent, meaning that the lowest band of taxable
income, which attracts a tax rate of 10 per cent now starts at Sh11,181,
up from Sh10,164 previously.
The upper band floor was fixed at Sh42,782.30 per month, from Sh38,893 per month and attracts the top tax rate of 30 per cent.
There have been calls to review tax rates upwards
for high income earners, in order to boost tax revenue from a group that
is seen to be capable of absorbing such a rise without erosion of their
living standards.
The Institute of Certified Public Accountants of
Kenya (ICPAK), a key advisor on economic affairs, has proposed that the
tax on salaries above Sh800,000 per month be increased to 40 per cent
from the current 30 per cent.
ICPAK at the same time wants the 30 per cent income
tax rate paid by top earners to be charged on those earning Sh150,000
and above per month to ease pressure on middle income workers who it
says are being weighed down by the tax.
“The upper tax band should fall on individuals
earning above Sh150,000. This will free up a lot of disposable income
from the majority of the country’s lower income earners who are
overburdened by the current tax regime,” ICPAK’s tax workgroup member
and EY tax partner Francis Kamau said.
The Kenya National Bureau of Statistics defines
low-income earners as those spending less than Sh23,670 monthly, middle
class (between Sh23,671 and Sh120,000) and upper income over Sh120,000.
The timelines suggested by Mr Rotich for review of the
Income Tax Act are, however, being seen as optimistic, especially
because the country ia headed into an election year.
“The changes touch on personal incomes, and
therefore this is unlikely to be implemented in the next two years
because of the election cycle. It also requires stakeholder input,
which could take time,” said Michael Mburugu, a partner at consulting
firm PKF Kenya.
Mr Mburugu suggested that it would be easier to
make incremental changes to the law, and accompany the same with further
changes to the other tax laws (VAT and Excise) in order to make a shift
towards reducing reliance on income tax for revenue.
Kenya relies heavily on income tax, with the
informal sector that has been a key driver of the economy remaining
largely untaxed.
According to a report by ICPAK, Kenya’s total
revenue significantly increased by 44 per cent from Sh651 billion in
2010/2011 to Sh1.1 trillion in 2014/2015, largely attributed to
significant increases in the collection of income tax, which increased
from Sh272 billion in 2010/2011 to Sh542 billion in 2015, equivalent to a
50 per cent increase in collection.
cmwaniki@ke.nationmedia.com; bnjoroge@ke.nationmedia.com
cmwaniki@ke.nationmedia.com; bnjoroge@ke.nationmedia.com
No comments :
Post a Comment