As the new year beckons, so, too, do tax changes, with the aim of better-capturing tax payments. Yet, in all the progress in building a more robust tax system, a huge blind spot remains for the majority of our accountants: and that’s the tax on foreign supplies.
In 2022, imports accounted for some $24.4bn, while the country’s entire GDP was $113.2bn - depressed, unfortunately, by a $14bn trade deficit, as our imports, once again, eclipsed our exports.
Thus, imported goods accounted for almost a fifth of all our consumption, investment and government spending, last year.
Now, the levies and charges on imports are sometimes complex. But when it comes to imported services, the key to tax compliance lies in a device called withholding tax (WHT). And WHT truly is simple.
The invoice arrives, from any nation or region, be it Mongolia, Canada, Poland, or the UK. You look up the country it came from in a very short Kenya Revenue Authority (KRA) table and decide if this particular service falls under any of the services requiring WHT payments. If it does, the percentage to be withheld is listed there.
As the invoice is paid, that percentage is deducted from the total supplier payment and paid directly to KRA. The payment itself is also simple. Obviously, not every individual on our planet of 8 billion, nor every company, is registered with the KRA or has a KRA PIN. But all that is necessary to pay withholding tax (WHT) is the name of the foreign entity or person, and their email address.
As the WHT is paid, the KRA system then generates an automatic WHT Certificate that is sent both to the foreign supplier’s email address and to the Kenyan person or company that has just paid the WHT.
One would think this was so simple, that it could never present a challenge. Truly, it takes about 7 seconds to look up, say, Kenya withholding tax on UK payments, and see what must be deducted at what percentage. But opening this table, and understanding WHT, remains firmly outside the knowledge of a majority of Kenyan invoice payers: indeed, it gets treated like it’s a PhD looking up one national rate card.
It’s the same black hole that afflicts most other import taxes, with surveys of import agents discovering that very few are able to find and calculate correctly their duty payments and levies. And that despite blockchain systems for submission, these days.
So, while it matters that 80 percent of Kenyan goods and services are captured, the last leg remains combining simple systems with education in them in accountancy qualifications - so, for WHT, that’s one five-minute addition.
The writer is a development communication specialist.
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Note: The results are not exact but very close to the actual.
