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Editorials

EDITORIAL: Tax exemptions regime needs a total overhaul

 KRA headquarters
The KRA headquarters in Nairobi. FILE PHOTO | NMG 

That the system for tax exemptions offered by the Treasury has been abused by some companies and individuals is one of the worse-kept secrets.

It is therefore a welcome move that the Treasury is seeking to find out and recover what has been lost irregularly and put it back to the public purse.

The method the Treasury is using is to go through the books of the suspect organisations and individuals to establish whether they abused the exemptions that they received in the past.

Such an audit is welcome because it will reveal the extent of the problem and show the loopholes that should be sealed to improve tax compliance.

The drawback with the audit however is that it dwells on the past and it is being conducted by the agency that gave the exemptions in the first place. It goes into historical issues and it may very well be difficult to recover the lost money where the concerned entities are no longer in operation or where evidence will be hard to come by.

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There is a need to get a way forward beyond the audit. For one, the discretion given to Treasury officials could be one major issue because they can determine whether an institution deserves the exemption or not.

This discretion should more clearly defined.

Second, it would appear that the certificate of exemption for donor-funded projects does not adequately describe the work or project that will benefit from exemption.

As a result, the contractor uses the same certificate to procure tax-free materials for multiple projects, including those that are purely commercial and are not those originally meant to benefit from the exemption. This is tantamount to theft of public funds and companies found culpable should be made to pay back the money besides facing other sanctions.

In the long run, however, there should be more robust monitoring of the usage of the certificates to ensure they are not misused.

Finally, all government agencies should put in place systems that ensure abuse of the exemptions does not happen in the first place.

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