The dust has settled down following the August 9 general election. If recent pronouncements by the new administration are anything to go by, Kenyans can expect tax changes in the short to medium term.
It is true that in achieving the tax targets, some taxpayers have experienced the brunt of an aggressive revenue mobilisation drive. This may explain the calls for a more cordial approach to taxation.
Kenya’s debt burden coupled with the recurrent expenditure barely leaves resources for development expenditure. Consequently, development expenditure would be financed either from borrowing or some form of fiscal consolidation. Fiscal consolidation takes the form of either reduced expenditure or increased tax collection to fully fund the budget.
Most treasuries in the world adopt a combined approach to balance their budgets. Last week in his address to the joint sitting of Parliament, President William Ruto called for austerity measures to free up Sh300 billion.
Even as the technocrats scratch their heads over these cuts, we can expect tax changes starting as early as April 2023 when the Finance Bill, 2023, is presented to Parliament.
First, the Income Tax Act, which is a 1974 piece of legislation, is likely to be overhauled. Our neighbours, Uganda, Tanzania and Ethiopia have newer Income Tax Acts that address the evolution of global commerce without cumbersome and often complex piece-meal amendments.
In his speech, the president also outlined his view of a progressive tax regime. Such a regime should tax wealth, consumption, income and trade, in that order. Further, once the Africa Continental Free Trade Area agreement is fully implemented, import taxes will gradually decline as intra-Africa trade expands.
Second, we could see bold new areas of tax. For instance, we could see a gradual hike of the capital gains tax from 15 percent in 2023 to 30 percent over the next two to three years. We could also see an introduction of inheritance tax, especially on land and property. The talk of taxing idle land may also cease to be idle talk, should the policymakers seek to expand the tax base.
Although not popular, policymakers may also seek to introduce a super income tax rate for two reasons. First, employees hit the highest tax bracket of 30 percent at a relatively low-income rate of Sh32,333 per month.
A super tax rate of 35 percent as is the case in Uganda and Ethiopia, will distinguish between an employee who earns Sh100,000 and one who earns Sh1 million.
Secondly, the super tax rate will pay homage to the principle that tax should be based on the ability to pay.
From an administrative perspective, the tax agency is likely to reap big from its new role of collecting the monthly National Industrial Training Act (NITA) levy.
Kenya has distinguished itself in public participation, especially when crafting tax policy and legislation. This is as good a time as any, to have your say as the new sheriff in town shapes the tax landscape.
Waruiru is a partner, Ichiban Tax & Business Advisory LLP. The views expressed are those of the author.