Treasury to review tax incentives on revenue pressure

Treasury CS Ukur Yatani. FILE PHOTO | NMG

By ELIZABETH KIVUVA
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Summary

• Companies and investors face a shake-up of the tax incentives they have enjoyed over the years after the Treasury decried rising pressure on revenues.
• Treasury secretary Ukur Yatani said Kenya’s current tax expenditure is unsustainable because of deep constraints on revenue collection.

• Kenya incurs tax expenditures though tax credits, tax-free zones or incentives to investors make it competitive against its neighbours and spike up investment.

• The incentives include preferential rates of tax, investment deductions, tax reliefs, zero eating for VAT purposes, remissions of taxes and exceptions.

Companies and investors face a shake-up of the tax incentives they have enjoyed over the years after the Treasury decried rising pressure on revenues.

Treasury secretary Ukur Yatani said Kenya’s current tax expenditure is unsustainable because of deep constraints on revenue collection.

“We are considering a review of tax expenditures and incentives to minimise revenue loss,” he told participants at the annual tax summit last week.

The Treasury data shows that Kenya’s tax expenditure amounted to Sh535.9 billion in 2018 or six per cent of the gross domestic product (GDP). Of this, value-added tax (VAT) accounted for 69.2 per cent followed by corporate income tax at 15.7 per cent and Customs exemptions and remissions accounting for 13.9 per cent

“Certainly, Kenya’s tax expenditure to GDP of six per cent compares unfavourably with the about 1.4per cent in Mauritius. It is, therefore, fundamental that as a country we reconsider tax policies that provide for such expenditures to ensure sustained revenue mobilisation” said Mr Yatani.

Kenya incurs tax expenditures though tax credits, tax-free zones or incentives to investors make it competitive against its neighbours and spike up investment.

The incentives include preferential rates of tax, investment deductions, tax reliefs, zero eating for VAT purposes, remissions of taxes and exceptions.

Companies such as those located in Export Processing Zones are charged a zero per cent corporate income tax rate for 10 years, while Special Economic Zone enterprises are not required to register for VAT.

The Nairobi Securities Exchange-listed firms are entitled to reduced rates of income tax for a period depending on the percentage of share capital listed.

This as well as local motor assemblers that pay 15 per cent of corporate income tax in the first five years against the normal 30 per cent that reduced to 25 per cent due to Covid-19 economic woes.

The Kenya revenue Authority missed its tax collection targets in the last financial year after it recorded Sh1.453 trillion in the year ending June, against Sh1.47 trillion target that had been revised from Sh1.60 trillion.