Cut corporate tax to 20pc for growth boost, State urged

PKF Kenya partner Michael Mburugu during a PKF Kenya briefing on tax on June 3, 2019. PHOTO | DIANA NGILA | NMG 

In Summary

• Experts say heavy tax burden is pushing firms closer to insolvency.
• Last year, many top companies shed profits and laid off workers despite government data showing that the economy was expanding at a faster pace than in the previous year.
• At least 15 Nairobi Securities Exchange (NSE)-traded firms issued profit warnings indicating that their earnings will fall by at least 25 percent over the previous financial year.

By PATRICK ALUSHULA
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Audit and advisory firm PKF Kenya is proposing a reduction in corporate tax from the current 30 percent to 20 percent for the next three years as a stimulus to the many struggling companies.

PKF partner Michael Mburugu said this will help businesses to reinvest, get strong and secure employment and future taxes for government unlike now when most are struggling to keep their doors open.

“It is obvious that many middle- and large-sized companies are struggling to stay afloat due to sustained adverse economic climate in the last three years,” said Mr Mburugu in a 2019/2020 pre-Budget briefing in Nairobi on Monday.

“In order to stimulate growth and put these companies back on track, government should consider reducing income tax rate to 20 percent for a period of three years to enable companies reinvest in their business.”

The proposal, if adopted, will mean a 10 percent tax saving for businesses but also a revenue loss of similar amount to government at a time Kenya Revenue Authority (KRA) is missing its targets and public debt is bulging.

Last year, many top companies shed profits and laid off workers despite government data showing that the economy was expanding at a faster pace than in the previous year.

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At least 15 Nairobi Securities Exchange (NSE)-traded firms issued profit warnings indicating that their earnings will fall by at least 25 percent over the previous financial year.

At an individual level, more than half (51 percent) of Kenyans reported worsened financial status, according to the 2019 Financial Access Household survey, up from 34.3 per 2016.

PKF says that last year’s 6.3 percent economic growth is too rosy for a sector that witnessed increased number of struggling companies and the taxman missing revenue targets

Last year, the National Treasury was proposing a 35 percent corporate tax for companies on annual income of more than Sh500 million, a move that if pushed through would have hurt earnings further.

PKF has also called for a more predictable regulatory environment. The firm says small business should be given simplified importation rules and guaranteed a pre-shipment verification to save them from losses.

“We have witnessed unjustified and wasteful destruction of merchandise largely belonging to small-scale traders who import through consolidation. This has huge negative impact on the economy,” says PKF.