Opinion and Analysis
Plug all loopholes to ensure tax compliance
Posted Monday, June 18 2012 at 20:47
Finance minister Njeru Githae has promised to enforce the Income Tax Act to make sure that all rental house owners earning more than Sh10,000 are charged income tax.
Widening the tax bracket is the dream of any taxman.
It not only reduces the tax burden on a few people, but also gives the government a chance to collect more revenue to fund the national development.
There has been a tendency over the years where only the salaried, and the big corporations pay their taxes while majority of those in the informal sector are left out. This is not a unique Kenyan case.
While the tax regime has been complex, it is the general inefficiency in collection that has made many would-be tax-payers get away with it while only a few bear the brunt. But the Kenya Revenue Authority should set up proper structure to net those outside the tax bracket and explain how the rental tax will be collected.
It is imperative to note that many players within the informal sector are completely out of the tax brackets.
While this tax on rental houses is welcome, the KRA should come up with other initiatives that capture all taxable activities.
No nation can thrive when only a few individuals pay taxes.
But having said that, there are several loopholes that the government should seal to make sure that there is total compliance. For instance, the minister says that they will use occupation certificates issued by local authorities to map out the rental houses.
That might only net a few since most multiple-dwelling houses do not have those approvals.
While mapping of residential units is the easier way out, the KRA will need to put proper infrastructure since landlords will try to complicate the collection of the taxes – to be based on existing Pay as You Earn (PAYE) tax bands. KRA should not increase its burden to collect this tax.
The best way forward is to make it easier for the taxpayer to meet his/her obligations without going through any complex payment system.
That is the only way to enhance the collection of taxes from all sectors.
As we have said before, the same zeal in collecting taxes should be extended to other sectors which have evaded tax payments for far too long. We have thousands of dairy farmers, matatu operators, and others in the informal sector who earn millions of shillings yet captured under the PAYE tax regime.
That is why the government should continue exploring for ways to bring more people in the personal tax bracket. But as they do that, we need more clarity on how these taxes will be collected.
KRA should not simply assume that landlords will queue to pay. That will be wishful thinking.