KRA targets Sh81bn on removal of tax reliefs for wealthy

Wealthy individuals and firms have lost more than Sh80 billion in annual tax breaks after the Treasury withdrew a raft of incentives in April last year to partly make up for losses as a result of short-lived Covid-19 reliefs.

The Treasury estimates the Kenya Revenue Authority (KRA) will collect Sh81.29 billion in the first 12 months following withdrawal of some income and value added tax (VAT) breaks in early days of Covid-19 pandemic shocks.

Treasury secretary Ukur Yatani used the Tax Laws (Amendment) Act, which handed businesses and households tax reductions between April and December last year, to remove some of VAT exemptions and rebates on corporate income tax.

The Treasury and the taxman have in recent years been looking to claw back some of the preferential rates of tax, investment deductions, tax reliefs, zero-rating for VAT purposes, remissions of taxes and exceptions.

They 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 and instead added to the profits of firms and the wealthy.

Mr Yatani, in disclosures to the International Monetary Fund (IMF) while successfully applying for the Sh255 billion ($2.34 billion) 38-month credit facility, says the removal of some of some tax breaks in April last year is part of Kenya’s strategy to “broaden the tax base and raise the efficiency of the tax system”.

The elimination of VAT exemptions on supplies for construction of power-generating plant is estimated to yield Sh29.34 billion in annual taxes, while scrapped exemptions on plant and machinery will likely net Sh16.567 billion more.

The Treasury further expects the cut in investment deductions for firms putting up buildings for manufacturing plants and hotels to 100 per cent from 150 per cent when calculating corporate income tax to help KRA net Sh14.74 billion in 12 months.

Further, cash is expected to come from scrapped tax exemption on interest earned on contribution paid to Deposit Protection Fund (Sh5.20 billion) and inclusion of excise duty and levies to the taxable value of petroleum products when calculating VAT (Sh4.83 billion).

Others include removal of a short-lived rebate at the rate of 30 percent of electricity cost for manufacturers (Sh2.7 billion) and raising of income tax on dividends earned by non-residents to 15 from 10 percent (Sh3 billion), among others.

Manufacturers have, however faulted the Treasury, saying the move would make it harder to do business in Kenya.

“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,” said Mr Mucai Kunyiha, the chairperson of the Kenya Association of Manufacturers.