Economy

Githae puts Kenyans on notice with Sh1 trillion tax demand

kra

KRA staffers carry a banner around Times Tower, during a past tax payers week, recently. Finance minister Njeru Githae says the Kenya Revenue Authority (KRA) would be expected to collect Sh1 trillion in the next fiscal year, a 15 per cent growth from this year’s Sh870 billion target. PHOTO / PHOEBE OKALL

Kenya’s tax revenues must grow by Sh130 billion in the next financial year to meet rising public expenditure obligations, the Treasury said on Monday.

Also read: Safaricom named top tax payer of the year

Finance minister Njeru Githae said the Kenya Revenue Authority (KRA) would be expected to collect Sh1 trillion in the next fiscal year, a 15 per cent growth from this year’s Sh870 billion target.

The new target sets the taxpayers up for fresh battles with a more aggressive taxman.  

Also see: KRA sparks row with fresh tax demand on top athletes

The new revenue target is seen as the Treasury’s reaction to the impending steep rise in public expenditure as Kenya rolls out the devolved government provided for in the Constitution.

Mr Githae made the announcement as the International Monetary Fund (IMF) and KRA pitched for elimination of tax rebates that Kenya has been offering large segments of the consumer market and are estimated to be worth billions of shillings per year.

Yesterday, the Treasury renewed its push for KRA to get two per cent of the projected annual tax collection to help strengthen its systems in readiness for the new assignment.

The taxman will have a Sh20 billion war-chest in the next fiscal year if Parliament approves the Finance Bill 2012 which contains the proposed allocation.

“For this we will give you all you want: if you want higher commissions, if you want more staff, if you want more bonuses we will give you,” Mr Githae told KRA after he announced the new target.

KRA has a Sh870.5 billion target this year, which has been enhanced by Sh40 billion in the supplementary budget to meet the recent pay increases awarded to teachers and doctors.

Mr Githae made the announcement as President Kibaki honoured last year’s top 10 taxpayers who contributed Sh115 billion or 17 per cent of the total tax but will be expected to pay even more from July next year.

Telecoms operator Safaricom, which was last year’s top tax payer, is expected to help the taxman tap more revenue with the planned introduction of a new tax on mobile money transfer services.

East African Breweries Limited, the second largest tax payer, is also awaiting the enactment of the Finance Bill to charge more for beer.
The Teachers Service Commission (TSC) is expected to boost that effort with a Sh2.6 billion revenue cheque arising from recently enhanced teachers’ salaries.

Most analysts agreed that meeting Sh1 trillion revenue target would be a steep climb for KRA, which is already ruffling feathers with its reinvigorated campaign to net more taxes from the rich – including landlords and international athletes.

“KRA has been having problems collecting taxes and missing its targets,” said Robert Shaw, an independent commentator. “The government has to think outside the box and take a radical view of taxation instead of merely setting new targets.”

He suggested that one area that the government should consider seriously for taxation to increase annual revenues is to charge property tax.

Kisumu MP Shakeel Shabir has reportedly promised to push for the reintroduction of the capital gains tax, which Mr Githae referred to at a recent press conference.

If re-introduced, the tax would come at a critical moment when developers are minting billions of shillings in a property boom that has lasted nearly the entire Kibaki presidency.

The tax was removed during the Moi era ostensibly to help speed up development of the Nairobi Stock Exchange but the move has mostly been seen as a self-serving effort by the ruling elite to avoid paying taxes.
Introduction of more tax measures is seen as inevitable as Kenya prepares to pay for the new multi-layer government structures that will be in place by mid next year.

Apart from businesses, consumers are set to foot the bill, setting the country up for a general rise in prices of goods and services.

“We must expect some inflationary pressure from these tax measures.

The higher tax is not a good thing but there are more departments to be funded,” said Zachary Ouma, an economics lecturer at the United States International University.

The government is counting on a number of measures to expand the revenue base, including the new Value Added Tax Bill which MPs have promised to shoot down in response to President Kibaki’s refusal to ascent to the Finance Bill after MPs inserted a clause awarding themselves billions of shillings in gratuity.

Yesterday the IMF, which has backed the Bill as part of fiscal reforms, urged MPs not to risk the move even as the government cranks up spending and seeks more tax revenue.

“Parliament needs to pass the VAT Bill. I really hope they will pass it because Kenya needs to finance priority expenditures including higher salaries,” said director of IMF’s Africa Department Antoinette Sayeh at the opening of a conference to discuss Africa’s economy (story on Page 2)
The IMF advice came as KRA Commissioner-General John Njiraini, told the rich to stop preaching tax remissions.

The VAT Bill and the pending overhaul of the Income Tax Act — which Mr Njiraini said would come in the next Budget — are primarily aimed at eliminating rebates.

A number of industry players and MPs have opposed the phase-out of exemptions and zero-rating. Mr Njiraini said such campaigns were reinforcing negative perception on taxation.

“I would urge all leaders to actively promote tax culture by refraining from campaigns meant to popularise tax rebates,” he said.
Some analysts however believe the solution to higher tax collections lies within KRA.

Mr Shaw said KRA has to improve its systems to eliminate tedious processes like those that require taxpayers to visit Times Tower to know what they owe and to correct mistakes, instead of the taxman invoicing its clients.

KRA has enumerated a number of logistical measures it hopes to use to boost collection.

Top in the list them is an interactive tax portal, mobilisation of communities to pay taxes, use of GPRS-enabled electronic tax registers and offering tax services in all National Bank branches to reduce congestion at Times Tower.

The driving licence renewal services offered by NBK would be spread to other banks, Mr Njiraini said.

President Kibaki has presided over the tax function since 2005 and yesterday noted the tax collection had supported the implementation of the government’s economic programmes.

“This tremendous increase in tax revenue has enabled us to finance education, health, transport, water and irrigation, energy, communication and agriculture. 

On these key priority areas alone, my Government has spent about Sh3 trillion since 2003,” he said.