Kenya targets higher revenues in VAT reforms

By raising an estimated Sh100 billion from the removal of tax exemptions, for instance, Treasury will be closer to keeping its stock of total debt to about 40 per cent of GDP and domestic borrowing to around 3.8 per cent of GDP, down from 6.2 per cent in the previous fiscal year.

The government plans to raise about Sh105 billion from the domestic market to meet this fiscal year’s budget deficit.

The lowering of VAT rate comes after the Finance minister Uhuru Kenyatta announced a raft of business reform policies in this year’s Budget.

As a priority, the government will by the end of this month pay all VAT refunds that have been vetted as payable.

“All new claims that meet the low risk criteria will be paid within 120 days,” Mr Kenyatta said.

By adopting a low VAT regime, Kenya will complicate the plot for its neighbours in the EAC market that is supposed to issue a common tax rate, including VAT as part of the integration efforts.

While Kenya, Uganda, Tanzania, and Rwanda charge 30 per cent corporate tax, Kenya’s 16 per cent VAT is the lowest compared to the rest that levy a rate of 18 per cent.

If other EAC members are to follow suit, they will have to contend with lower revenues.