Ideas & Debate

Treasury should seize budget opportunity to infuse tax certainty

Henry Rotich
Treasury CS Henry Rotich. We will be keenly watching the Treasury’s proposals and their effective dates. FILE PHOTO | NMG 

Commenting on the adoption of the new US constitution, Benjamin Franklin, said that “in this world nothing can be said to be certain, except death and taxes.” This quote is intriguing because we all know that one day, death shall come calling. We also know that tax is the price we pay for a civilised society.

However, not many can confidently say they know their tax liability with absolute certainty even though they will indeed pay the tax.

Tax is guided by canons of taxation. These basic canons or principles suggest that tax ought to be, among other things, simple, equitable, productive and certain. The principle of certainty means that taxpayers ought to know what income or transaction is taxable, the applicable tax rate, the due date for the payment of such tax and the resultant penalties in the event that the tax is not paid by the due date.

Recent studies, including some by the World Bank, indicate that most investment decisions are based on tax certainty and not tax incentives. Businesses prefer operating in an environment where their tax obligations are certain as this facilitates long-term planning.

The Public Finance Management Act, 2012, introduced the concept of publication of budget estimates. Thus, today, the National Treasury publishes the revenue and expenditure estimates.


This is how the public knows the budget to be unveiled during the budget speech. It is from these estimates that we also know what Kenya Revenue Authority (KRA) is expected to collect as taxes.

In my view, the Treasury has a golden opportunity to enhance operationalisation of the canon of tax certainty through the budgeting process. Many countries including the UK and South Africa routinely publish tax proposals for public debate ahead of the budget proposals. By publicising the budget proposals, the government is able to get feedback and perspectives to consider before passing the tax proposals.

We need not look far for an example. Uganda has, for three years now, been publishing its budget proposals before budget day. Once published in March, the Ugandan parliament scrutinises the proposals in April and May. In the just-concluded scrutiny, Parliament rejected the proposal to limit the tax loss carry forward period to seven years. Similarly, Parliament declined to assent to the proposal introducing an alternative minimum tax of 0.5 per cent of turnover for loss making companies.

As part of its initiative to bolster tax revenues, the government of Uganda introduced a one per cent withholding tax on agricultural produce.

This meant that appointed withholding tax agents such as hotels and restaurants paid farmers the sales proceeds less the one per cent withholding tax. In exercise of its legislative power, Parliament introduced a new proposal to repeal the one per cent withholding tax.

The most poignant proposal from the parliamentary scrutiny is perhaps the withholding VAT (WHVAT). In 2018, taxpayers in Uganda were required to withhold the entire VAT on a supply.

Naturally, this caused massive cash flow challenges as the suppliers were still required to account for the entire VAT. Parliament has concurred with proposals to reduce the WHVAT to six per cent of the 18 per cent VAT, effective July 1, 2019.

The benefits of early publication of the budget proposals are clear. The Treasury can ensure sufficient public participation as is required under both the Constitution and Public Finance Management Act.

In addition, with a broad agreement of the proposals before budget day, the effective date of the amendments can be as soon as July 1, meaning that the KRA has a better chance of meeting its revenue targets. For taxpayers, such early publication and debate afford the much-needed tax certainty for business planning.

Where there might be administrative implementation challenges, taxpayers and the KRA are afforded the opportunity to discuss and agree on an acceptable way forward.

Most importantly, with advance publication of the budget proposals and public debate, the challenges enunciated by the High Court in the Okiya Omtatah case around Parliament’s legislative role and effective date of the Finance Bill will be a thing of the past.

For this year though, we will be keenly watching the Treasury’s proposals and their effective dates, come budget day.

Robert Waruiru is an Associate Director with KPMG Advisory Services Limited. [email protected]