Accountants lobby proposes tax incentives to grow Kenya revenues, reduce deficit

Kenya can raise domestic revenue levels and reduce the growing fiscal deficit through tax incentives.

The incentives would be used to encourage investment in job-creating industries that will help widen the tax base, the professional accountants' body has said.

This approach, says the Institute of Certified Public Accountants Of Kenya (ICPAK) chairman Julius Mwatu, can work as an alternative to austerity measures, which have proven a futile effort in the country in recent years.

Such incentives include tax holidays, exemption from duty and VAT on imports of raw materials and other materials brought in for manufacturing, and investment allowance on plant, machinery, equipment and buildings.

Employers can also get tax rebates for hiring fresh graduates, a scheme that is already being rolled out in the country.

“We want to have tax policies, which encourage investment, not chase away investors so that we create jobs that will in turn raise out tax revenue. The government must also work hard to seal the tax loopholes that cause revenue leakages,” said Mr Mwatu on the sidelines of the body’s economic symposium in Nairobi on Wednesday.

“The Treasury also needs to address the issue of excesses in the recurrent budget, which is where the Integrated Financial Management Information System (IFMIS), when fully implemented, will play a big role since it will track public finance transactions all the way until payment.”

Job creation

Kenya’s job creation has not been in tandem with the growing population, putting a heavier load on those paying tax to meet the needs of the larger number of non-contributing population.

Revenue collection has, therefore, been failing to hit the target amid a rising budget, leaving the Treasury with no option but to borrow from both the domestic and external markets to cover the gap.

Public debt now stands at Sh4.6 trillion, having more than doubled from Sh1.8 trillion five years ago.

Kenya’s fiscal deficit stands at 8.9 per cent, with efforts to bring this down last year hampered by heavy spending on food and standard gauge railway imports, the former due to a biting drought.

Cutting the recurrent budget has also proved a hard nut to crack for the Treasury, mainly attributed to an ever rising public wage bill.

This has partly been due to the extra staff hired by counties.