SGR, military tax breaks deny KRA Sh18bn in import duties
The KRA must raise nearly Sh134.94 billion every month between January and June this year to hit the Sh1.44 trillion full-year target. FILE PHOTO | NMG
Tax breaks granted to SGR contractors, the Kenyan military and the Kenya Police forced the taxman to forfeit Sh17.9 billion in import duties and other taxes.
Projects undertaken with funding from foreign governments often enjoy tax exemptions under the Kenyan law in a practice that is aimed at encouraging aid inflows.
The exemptions apply to imports and procurement of goods and services, and extend to both direct and indirect taxes —including customs duties.
Exemptions for various transactions under international assistance projects apply in Kenya, often at the insistence of donors and foreign governments.
Massive tax breaks granted to standard gauge railway (SGR) contractors, the Kenyan military and the Kenya Police forced the taxman to forfeit Sh17.9 billion in import duties and other taxes, according to confidential Kenya Revenue Authority (KRA) data that the Business Daily has seen.
The KRA data shows that the list of exemptions includes waivers on food subsidies that the Treasury announced last year to cushion ordinary citizens against an acute drought and exemptions granted to donor-funded projects.
Projects undertaken with funding from foreign governments often enjoy tax exemptions under the Kenyan law in a practice that is aimed at encouraging aid inflows.
The exemptions apply to imports and procurement of goods and services, and extend to both direct and indirect taxes —including customs duties.
Exemptions for various transactions under international assistance projects apply in Kenya, often at the insistence of donors and foreign governments.
Kenya’s bilateral partners ordinarily offer assistance in the form of grants, in kind or project financing using concessional loans.
SGR tops the list of mega projects currently enjoying tax breaks. The project, which is mainly financed by a Chinese loan, is worth Sh447 billion, including financing costs.
The KRA data shows that the taxman forfeited Sh5 billion on SGR-related supplies between March and July in duties assessed on the basis of cost, insurance, and freight (CIF) value. The CIF value for SGR supplies during the period stood at Sh30 billion.
President Uhuru Kenyatta’s administration is banking on the railway to move 40 per cent of cargo handled at the Mombasa port from roads to the SGR in order to reduce the damage that trucks cause to the highways, reduce accidents and cut costs associated with slow movement of goods.
The KRA data also shows that between March and July last year duty assessed on CIF for the Ministry of Defence supplies forced the taxman to forfeit Sh1.96 billion. The CIF value for the military supplies in the period stood at Sh9 billion.
Food remissions that covered maize, sugar and milk in the months of May to November last year when the country was under severe drought denied KRA additional Sh276 million.
The KRA also forfeited Sh1.2 billion in tax revenues that was chargeable on Kenya Police supplies between March and July last year. The CIF value of the supplies stood at Sh6.3 billion.
Tax experts said aid-funded projects provide a catch 22 situation for the government because taxing them could force assisting countries to take their money elsewhere for bigger impact.
“It’s a two-way street,” said Nikhil Hira, the Deloitte East Africa tax leader, adding that compelling bilateral partners to pay taxes on concessional loans would be equally counterproductive.
The KRA has a Herculean task of raising nearly Sh134.94 billion every month between January and June this year to hit the Sh1.44 trillion full-year target. The taxman collected Sh1.365 trillion in the year ended June 2017, falling short of the target.
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Note: The results are not exact but very close to the actual.
