On 18 January 2023, the Kenya National Treasury and Economic Planning (Treasury) published the Draft 2023 Budget Policy Statement (BPS).
The BPS focuses on economic turnaround and inclusive growth.
Specifically, it aims to increase investments by prioritising five core sectors including agriculture; micro, small, and medium enterprises; housing; healthcare; the digital superhighway and the creative industry.
To finance the economic turnaround plan, the government projects Kenya’s real gross domestic product (GDP) will rebound from 5,5 percent in 2022 to 6,1 percent.
The government expects to raise revenue of Sh3 trillion in the financial year 2023/24 and Sh4 trillion over the medium term.
The BPS has proposed a cocktail of tax policy and administrative reforms. With respect to administrative reforms, it seeks to reduce the value-added tax gap from 38,9 percent to 19,8 percent by rolling out the Electronic Tax Invoice Management System (eTIMS).
It also aims to reduce the Corporate Income Tax gap from 32.2 percent to 30 percent of the potential, as envisaged in the Kenya Revenue Authority’s (KRA) Corporate Plan.
In addition, the BPS contemplates integrating the KRA’s tax system with telecommunication companies, expanding the tax base in the informal sector, and implementing rental income tax measures by mapping rental properties.
It also aims to roll out measures at customs and border control leveraging technology and enhanced data analytics to enhance revenue per unit.
Regarding policy reforms, the finalisation of the National Tax Policy and the Medium-Term Revenue Strategy (MTRS) for the period FY 2023/24 – 2026/27 is captured as necessary to boost tax revenues and improve the tax system in the country.
The National Tax Policy is expected to provide consistency and certainty in tax legislation and management of tax expenditure, as well as to enhance the administrative efficiency of the tax system.
On the other hand, the MTRS aims for a comprehensive approach of undertaking effective tax system reforms.
Notably, the objectives of the MTRS include raising ordinary revenue to GDP from 15 percent in 2021/22 to 25 percent by 2030 and increasing the tax compliance rate from 70 percent in 2021/22 to 90 percent by 2030.
It also seeks to enhance the ease of doing business and promote collaboration between government entities for domestic revenue mobilisation.
The BPS has also introduced multiple tax incentives in disparate sectors in a bid to promote local manufacturing and production.
Other initiatives in the BPS include training KRA staff, leveraging data that the various government agencies have, automation of systems for all key government entities, monitoring excisable goods factories and monitoring payments from the Government to ensure taxes are paid.
To sum it up, the BPS seeks to roll out various tax policies and administrative reforms in an attempt to transform the nation's economy and spur growth.
Alex Kanyi - Partner, Cliffe Dekker Hofmeyr-Incorporating Kieti Law LLP. Joseph Macharia and Ndinda Munyaka - Candidate Attorneys.
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