High income earners have been spared higher taxes after Treasury CS Henry Rotich backtracked on a proposal to levy a top tax rate of 35 per cent on income above Sh750,000 a month or Sh9 million year.
The CS said he has reversed the tax change contained in the Income tax Bill 2018 after collecting the views of the public on the matter. He is due to table the Bill before Parliament before the end of next month.
He has however retained the proposal to levy large firms a corporate tax of 35 per cent for taxable income of more than Sh500 million.
“During the public consultations on the Income Tax Bill, members of the public raised concerns on these proposals and were of the view that the higher rates are not appropriate at this time. We have considered these concerns and resolved to revert to the rates contained in the current Income Tax Act,” said Mr Rotich in his budget speech.
The decision to reverse the higher tax on the high income earners could make it harder for the KRA to achieve the ambitious target the Treasury has set to increase pay-as-you-earn tax by Sh68 billion to Sh447.6 billion in the next financial year.
Tax experts had welcomed the introduction of the top tax rate bracket for high income earners, saying it was progressive and long overdue given that this is the practice in most economies.
There were concerns however that with the low number of Kenyans who earn at least Sh750,000 a month, the receipts would not be sufficient to cover the targeted increase in PAYE, and that the government would need to complement the rate increase with an effort to widen the tax base.
Mr Omondi reckons that while there will be some increment in receipts because the taxes are deducted at source, the number of Kenyans in the top-income bracket remains low, and therefore the government needs to complement this measure with others that widen the tax base.
The income tax law is the only major tax legislation that had not been comprehensively reviewed in the past four years.
The government reviewed the VAT Act in 2014, and followed it up with a review of the Excise Duty Act in 2015.