EAC partner states are considering ways of widening tax brackets to boost revenue collection. PHOTO | FILE | NATION MEDIA GROUP
East African Community finance ministers face a tough task this
week (Thursday) as they present their budget statements for the
2019/2020 fiscal year with a focus on bringing more people and
businesses into the tax bracket to service the rising public debt and
reverse the fall in revenue collections.
The
ministers will also be looking to allocate the additional resources to
the debt-servicing kitty through the Consolidated Fund Services.
EAC
partner states are considering ways of widening tax brackets to boost
revenue collections and channel more domestic resources towards
repayments of interest on billions of dollars’ worth of loans procured
to fund development projects.
The EAC
has been trapped in the web of infrastructure development which has
seen millions of dollars find their way into various projects such as
pipeline, road, rail, airports, and ports development.
It
is, however, argued that while infrastructure development is important
to the economic development of a nation, funding for these projects is
nudging the national economies into a debt overhang, with most of the
expensive loans coming from China in exchange for project contracts.
DAR ES SALAAM
In Tanzania, the government has disclosed that
it aims to boost revenue collection starting July 1 by widening the tax
base and enhancing voluntary tax compliance through public awareness
programmes.
Tanzania Ministry of
Finance and Planning says the revenue policies for the 2019/2020 would
continue focusing on widening the tax base and strengthening management
of existing revenue sources, especially by intensifying the use of
electronic collection systems and other administrative measures.
In
widening the tax base, Dar government will be looking to formalise the
informal sector and improve investment environment to increase revenue
collection.
The country’s debt
service-to-revenue ratio has stood at a high of 49.6 per cent in the
2018/2019 fiscal year but it is hoped that with the proposed revenue
enhancement measures and the recent gross domestic product rebasing,
this proportion will decline to 38.1 per cent in the 2019/2020 fiscal
year.
Tanzania also plans to roll
over maturing principals for loans and pay interest through domestic
revenues in the 2019/2020 fiscal year.
In
March, Tanzania rebased its GDP with preliminary results showing that
the economy had expanded by 6.3 per cent in 2018, higher than that of
the previous base year.
However, data
by the World Bank shows that Tanzania’s revenue collected as a
proportion of GDP in 2018 declined to 14.4 per cent from 15.2 per cent
in 2017.
Tanzania has relied on
non-concessional loans to finance development projects due to declining
resources from traditional creditors. Its share of concessional debt
declined to around 61.2 per cent in June 2018 from about 79.1 per cent
in 2012/2013, as the Government continued borrowing from
non-concessional sources.
KAMPALA
In
Uganda, the government plans to allocate Ush431.26 billion ($113.62
million) to facilitate Uganda Revenue Authority efforts in enhancing tax
administration, increasing tax compliance and widening the tax base.
The
government also plans to allocate Ush10.69 trillion ($2.81 billion) for
debt service, debt redemptions and the Contingencies Fund.
NAIROBI
In
Kenya, the public debt service to revenue ratio stood at 30.5 per cent
in 2018 and is expected to increase to 33.4 per cent in 2019 compared
with 16.5 per cent in 2012.
Traditionally,
the taxman continues to miss revenue targets. The burden of funding
public spending has mostly been borne by large corporates and workers in
the formal sector, but now there are attempts by the government to
clamp down on real estate developers and landlords who had been off the
hook for so many years.
According to
its Budget Policy statement (2019) Kenya is now seeking to use
third-party information to identify non-compliant property developers
and ensure they are included in the tax base.
It
is hoped that by bringing more entities into the tax net revenues as a
share of GDP will rise to 18.3 per cent in the 2019/2020 fiscal year
from 17.3 per cent in the 2017/2018 fiscal year.
Kenya
has faced shortfalls in revenue collection with income tax recording
the highest shortfall on account of depressed performance in corporation
tax.
According to the National
Treasury, growing public expenditure pressures coupled with revenue
underperformance could make it difficult for the government to actualise
and sustain its macroeconomic policies.
The
Kenya government has already increased allocations to the consolidated
fund services to Ksh535.74 billion ($5.35 billion) in the 2019/2020
fiscal year from Ksh490.55 billion ($4.9 billion) in the current fiscal
year.
WEAK COMMITMENT
Part of the funds will cater for the repayment of public debt and the rest for pension.
Kenyan
lawmakers have already cautioned the national treasury against raising
taxes arguing the move would be unsustainable and risky to the country’s
growth prospects.
Instead, the
Parliamentary Budget Office wants the Treasury chief to focus on
measures to seal loopholes through which billions of dollars have been
siphoned from public coffers through corruption and tax evasion.
According
to the Parliamentary Budget Office, Kenya’s debt burden has also grown
over the years largely on account of increase in debt service payments,
yearly revenue shortfalls and weak commitment to fiscal consolidation.
The country’s total revenue between 2015/2016 fiscal year and 2018/2019
fiscal year underperformed its target by an average of Ksh95.6 billion
($956 million) while ordinary revenue was below target by an average of
Ksh56.2 billion ($562 million).
The
high level of debt, together with rising reliance on non-concessional
borrowing, have raised fiscal vulnerabilities and increased interest
payments on public debt to nearly 20 per cent of the collected revenues.
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