Kenya’s tax revenues are largely reliant on income related taxes which contribute over 40 per cent of total collections. PHOTO | FILE
Kenya’s tax collection has surpassed the benchmark identified by World Bank and the government indicating a cut in household spending power to fund government plans, a consultancy said on Thursday.
PricewaterhouseCoopers (PwC) said the government target of raising Sh1.3 trillion from taxes this year will amount to 18.7 per cent of the country’s GDP, higher than the 18 per cent ideal mark.
“Our tax to GDP ratio has increased over the last five years – for the year ending June 2013 it was 17.3 per cent it (and) will rise to 18.7 per cent at the end of this June and 19 per cent next year which is beyond the benchmark,” said Rijesh Shah a tax partner at PwC.
Surpassing of the benchmark raises queries on whether the Kenyan taxpayer is being overburdened.
Kenya’s tax revenues are largely reliant on income related taxes which contribute over 40 per cent of total collections while the informal market largely goes scot-free.
“The government is recognising the need to change the tax net or tax base and bring in more people and also ensure submission of excise and VAT to the authority,” said Mr Shah.
Over-taxation deprives the public of spending power killing demand for goods in the economy and watering down government stimulus plans.
The Treasury has sought to ease the tax load on salaried workers by expanding tax bands by 10 per cent which delays an employee’s entry into a higher tax levy.
The State has been under pressure to increase revenues as the size of the budget expanded mainly driven by ambitious infrastructural projects and expansion of the country’s administrative structure with the enactment of new constitution in 2010.
Low absorption levels of development expenditure was identified as a major weakness by the audit firm noting that it held back expected returns from such investments.
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