Wealthy households and firms have lost Sh145.39 billion in tax benefits after the taxman cut back on incentives in the five years to 2021, new Treasury data has shown.
These billions were previously not collected by the Kenya Revenue Authority (KRA) because the earnings were subject to tax reliefs, exemptions and deductions.
The data shows that tax benefits dropped to Sh259.51 billion last year from Sh404.90 billion in 2017, according to the 2022 annual report on tax expenditures by the Treasury.
The disclosures on tax expenditure, or revenue forgone by the KRA, is in line with a condition by the International Monetary Fund (IMF) which requires the Treasury to make public the benefits and their impact on the budget by end of September of each year.
The Treasury and the KRA chiefs have in recent years been clawing back some of the preferential rates of tax, investment deductions, tax reliefs, zero-rating for value added tax (VAT) purposes and exemptions as part of the structural benchmarks with the IMF.
They argue the tax concessions have failed to benefit the economy through, increased growth in investments, employment opportunities and affordable prices for consumers.
“To ensure sustainability and value for money from the resources foregone through tax expenditure, the Government will continue to upscale efforts rationalize and harmonize the tax expenditures with the aim of removing redundant tax expenditures and enhancing those intended to promote investments,” the Treasury wrote in the report.
“In addition, there is [a] need to have an elaborate framework for monitoring and evaluating the impact of tax expenditure in the economy.”
The revenue forgone by the taxman has fallen from Sh404.9 billion in 2017 to Sh381.64 in the year that followed, Sh320.1 billion in 2019, Sh302. 33 billion (2020) and Sh259.51 billion last year.
The Treasury estimates show tax concessions on domestic VAT — paid by traders with annual sales of more than Sh5 million— dropped to Sh211.94 billion last year from Sh234.38 billion in 2020. Domestic VAT accounted for 82.29 percent of the revenue forgone by the taxman.
Preferential corporate income tax extended to firms, trusts and co-operatives, on the other hand, fell 75.55 percent to Sh5.86 billion from Sh23.96 billion, while VAT benefits on imports declined to Sh12.01 billion from Sh17.69 billion in the prior year.
The forgone tax on personal income tax, or pay as you earn, also dropped to Sh1.16 billion from Sh4.13 billion, while that on excise duty on imports dipped to Sh537.3 million from Sh5.39 billion in 2020.
KRA commissioner-general Githii Mburu said in a past submission to the National Assembly argued consumers were largely not benefitting from the tax breaks given to companies.