Economy

Wealthy Kenyans lose Sh119 billion as tax benefits lapse

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Summary

  • Wealthy Kenyans and firms lost Sh118.79 billion benefits as a result of progressive removal of tax incentives offered to companies and traders in four years through 2020.
  • The billions of shillings were previously not collected by the Kenya Revenue Authority (KRA) because the earnings were subject to tax reliefs, exemptions and deductions.

Wealthy Kenyans and firms lost Sh118.79 billion benefits as a result of progressive removal of tax incentives offered to companies and traders in four years through 2020, the Treasury has disclosed.

The billions of shillings were previously not collected by the Kenya Revenue Authority (KRA) because the earnings were subject to tax reliefs, exemptions and deductions.

The tax benefits dropped to Sh318.32 billion last year from Sh350.86 billion in 2019 and Sh437.12 billion in 2017, reflecting a drop of 27.18 percent, says the inaugural annual report on tax expenditures.

The Treasury and the KRA 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.

They argue the tax concessions have failed to benefit the economy through increased jobs and affordable prices for consumers.

Tax benefits are the result of concessions or preferential treatment to particular classes of taxpayers or activities largely aimed at making prices affordable to consumers and increasing production leading to job opportunities.

But the Treasury reckons that businessmen and firms have used the benefits to boost their profits instead of passing the concessions to consumers in the form of cheap products and services.

“The drop was mainly driven by the decline in the domestic VAT occasioned by review of the VAT Act geared towards raising aggregate revenue,” the Treasury says in the report aimed at enhancing transparency and oversight of tax expenditures.

“It is noted that the reduction in the number of items exempted from VAT accounts forms most of the sizable reduction in tax expenditure over the last four years in Kenya.”

The Treasury estimates show tax concessions on domestic VAT — paid by traders with annual sales of more than Sh5 million— has dropped from recent highs of Sh356.71 billion in 2017 to Sh234.38 billion last year.

On the other hand, the cost of preferential tax on corporate income tax also fell from a high of nearly Sh77.1 billion in 2018 to Sh56.74 billion last year.

ZERO RATE

KRA commissioner-general Githii Mburu in a past submission to the National Assembly’s Committee on Finance argued consumers were largely not benefiting from the tax breaks given to companies.

“Even if we zero-rate (VAT on) maize, it does not mean that the price will go down. That money may just go to the manufacturer and the common mwananchi will not have anything to take home,” Mr Mburu said.

He added that preferential tax was not top of the priority list for investors. “Research shows that taxing ranks at number 11 in the things investors consider. They do not come to this country because of the preferential treatment in matters of tax,” the chief taxman said.