New Kenyan law to ease revenue payments set for next year

Kenyans will have to wait for at least a year to have a new Income Tax Act.

The new Act is intended to, among other things, simplify payments to the revenue authority, remove exemptions and broaden the tax base to net in more taxpayers with a view to increasing annual state revenues.

According to the Budget Policy Statement (BPS), which outlines the expenditure plans for the next financial year beginning in July, the new Income Tax Act will also be ready by the end of this year, but would be tabled in Parliament in early 2016.

The BPS, which is released ahead of the submission of the Budget Estimates, also says that the Treasury will this year submit to Parliament Bills on tax procedures and excise duty as reforms in tax procedures gather speed.

The Treasury is looking to grow tax revenue by at least two per cent of gross domestic product in the financial year 2015/2016 to Sh1.25 trillion, with the reforms coming at a time when the country is lagging behind in its revenue collection targets.

The government has been looking to improve revenue collection by recently reintroducing the capital gains tax, enacting an income tax regime for the extractive industry, introduction a six per cent withholding tax out of the 16 per cent value added tax (VAT) and launching the technologically more advanced i-Tax filing system.

“The National Treasury will in 2015 submit to the National Assembly for debate and enactment the Excise Duty Bill, and Tax Procedure Bill. Similarly, the review of the Income Tax Act will be completed by end-2015 and, subsequently submitted to National Assembly in early 2016,” reads the BPS in part.

The Treasury also expects to make progress on the planned split of the Kenya Revenue Authority (KRA) into two semi-autonomous but inter-dependent agencies, namely, the Inland Revenue Agency (IRA) and the Customs and Border Protection Agency (CBPA).

“In 2015, the National Treasury will commence the process of making the agencies operational, including developing a framework for entrenching competency and integrity into the two organisations,” reads the BPS.

According to the BPS, revenue collected in the six months to December 2014 was below target by Sh43.3 billion, coming in at Sh517.2 billion against the expected Sh560.4 billion.

The shortfall was attributed to underperformance across all the revenue categories.

Income tax recorded the highest shortfall of Sh12.3 billion followed by VAT at Sh6.2 billion. Import duty was below target by Sh4 billion while excise duty came in below target by Sh1 billion.

Ministerial collections, also known as appropriations-in-aid and which are inclusive of railway development levy, recorded an under performance of Sh21.4 billion.

The lower tax collections have been attributed to slower economic activity, especially in the tourism related sectors which have been hard hit by travel advisories from the Western world.

For the entire financial year, the expected total tax revenue is Sh1.087 trillion while the target for collections by ministries is Sh94.1 billion. The tax revenue target will rise to Sh1.25 trillion in year 2015/16.

The low collections so far have piled pressure on the KRA and the Treasury to put in place and implement new taxation strategies.

But some measures have encountered resistance with implications on amount of revenue to be raised. For example, with the collection of the capital gains tax having been shifted to the taxpayer rather than the brokers and investment banks, it is unclear whether the Sh7 billion targeted to be raised from the measure for the period between January and June will be achieved.