Corporate taxes exceed goal by Sh22.69 billion

Tax revenue from company earnings surpassed the Treasury’s revised targets by 7.37 percent in the year ended June, buoyed by economic recovery in the second half and inflows from halted Covid-19-related tax reliefs.

The Kenya Revenue Authority (KRA) collected nearly Sh330.71 billion in corporate tax in the review period, exceeding the goal for the fiscal year by Sh22.69 billion, an analysis of the latest revenue filings by the Treasury shows.

The budgetary review report indicates taxes remitted by firms in the January to June 2021 period grew 19.59 percent year-on-year to Sh174.09 billion, a turnaround from the first half through December 2020 when the receipts fell 3.42 percent to Sh156.62 billion when the reduced corporation tax was still in place.

Treasury Cabinet secretary Ukur Yatani reinstated the maximum income tax rate of 30 percent for resident companies on January 1 after getting approval from lawmakers, ending an eight-month relief when the top rate tax had been reduced to 25 percent.

KRA commissioner-general Githii Mburu said in July the growth in corporation taxes “was driven by increased remittance from energy, agriculture and construction sectors which grew 222.7 percent, 33.1 percent, and 31.9

percent, respectively”.

Despite reversing the income tax cuts in the Tax Laws (Amendment) Act, the Treasury retained lower investment deductions and removal of some rebates — which came into effect to partially cover the tax hole created— when the law was enforced in April 2020.

Mr Yatani had, in the disclosures to the International Monetary Fund (IMF) in April, estimated the removal of a raft of tax rebates relating to corporation taxes to yield about Sh28.15 billion on an annual basis.

Measures such as a cut in investment deductions for firms putting up buildings for manufacturing plants and hotels to 100 percent from 150 percent when calculating corporate income tax were to help the KRA net an additional Sh14.74 billion in 12 months.

Additional income tax receipts were expected from the scrapping of tax exemption on interest earned on contribution paid to the Deposit Protection Fund (Sh5.20 billion) and removal of a short-lived rebate at the rate of 30 percent of electricity cost for manufacturers (Sh2.7 billion).

Some of the value-added tax (VAT) exemptions that were removed through the Tax Laws (Amendment) Act included supplies for the construction of a power-generating plant which was estimated to rake in Sh29.34 billion in annual taxes, while scrapped exemptions on plant and machinery will likely net Sh16.567 billion more.

Mr Yatani has argued the removal of some corporate income tax rebates — as well as the scrapping of some VAT exemptions which has an impact on sales as the additional cost is passed onto consumers — were part of Kenya’s strategy to “broaden the tax base and raise the efficiency of the tax system”.

The Treasury and the KRA argue the tax expenditures, which they say increased to Sh535.9 billion in 2018 from Sh478 billion a year earlier, have failed to benefit the economy through increased jobs and affordable prices for consumers.

“The government has an impression of private sector making this huge profit and not paying taxes, but the cow has been milked to the end,” Mr Mucai Kunyiha, the chairperson of the Kenya Association of Manufacturers said in a past interview.

“We need to move away from the situation where people have been looking at us like we are walking away with much. We have not been moving away with much. We are not in a healthy state.”

Treasury data shows tax receipts from corporations’ and enterprises’ earnings for the year through June 2021 were 7.47 percent higher than Sh307.74 billion collected the year before. The Treasury initially set the target for tax payable by corporations and enterprises at Sh334.30 billion.

before revising it first to Sh335.99 billion and finally to Sh308.02 billion.

The downward revision came in the wake of Kitengela Bar Owners Association successfully petitioning the courts to suspend enforcement of minimum tax pending the determination of a case filed by business lobbies.

The enforcement of the law would have seen businesses pay the taxman at least a percentage of their annual revenue in taxes.