Revelations that more than 90 percent of companies failed to pay corporate tax calls for stern action from the taxman in ending avoidance and evasion.
The big question is why only 33,426 firms paid taxes out of the 401,306 registered for corporate tax and 168,428 that filed their tax returns, signalling they were active companies.
It is not enough for the Kenya Revenue Authority (KRA) to say it is puzzled by the discrepancy between those filing returns and actual taxpayers.
These companies are registered, and it should not be too difficult for the taxman to track them for reasons of clamping down on tax avoidance by individuals and firms.
It is highly likely that a good share of companies is churning out profits without paying their share of taxes. This is mainly happening through financial engineering where firms are inflating operating costs to report losses or lower performance.
The end result is that a few companies and individuals end up shouldering the tax burden in an economy where the KRA has consistently failed to meet revenue collection targets.
The State was short of its revenue target by Sh97.7 billion in the year to June, pushing the Treasury into heavy borrowing with the mounting debts now emerging as a risk to the economy.
Kenya’s public debt as a percentage of gross domestic product (GDP) has increased to 55 percent from 42 percent in 2013, denying the country resources that could have been used to unlock investment and job creation.
Therefore, a clamp down on tax cheats is a necessary component in the push to rev up economic growth and boost Kenya’s ability to generate quality jobs.
KRA must, therefore, up its revenue recovery to include prosecution to deter cheats.
The agency must track down active but non-compliant firms and insist on a higher level of disclosure to arrest tax avoidance.
It should also up penalties on those who should but do not pay taxes.
Without every capable Kenyan paying their taxes, it will take years to develop. That is why the KRA should take action on tax avoidance and evasion.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
