Kenya Revenue Authority’s headache in meeting revenue targets

Commissioner General Kenya Revenue Authority John Njiraini said the agency targets to raise Sh5.3 trillion in the next three years. [PHOTO: FIDELIS KABUNYI/STANDARD]

NAIROBI: The Kenya Revenue Authority (KRA) deserves a special commendation for daring to aim high by targeting to raise Sh5.3 trillion in the next three years. The tax body aims to do this, not by raising taxes—as some would advise it to—but by bringing into the tax bracket 4.4 million new tax payers.

The boldness of KRA’s vision becomes even clearer when viewed against the background that it is facing huge challenges meeting the slightly over Sh1 trillion current target. Obviously, the tax collection agency will need all the help it can get to meet the challenge.

As though in answer to KRA’s plea, the professionals appointed by the G20-controlled Organisation for Economic Co-operation and Development (OECD) two years ago to study tax avoidance and evasion presented their proposals earlier this week that could net countries like Kenya as much as Sh100 billion a year. The professionals proposed that large multinational enterprises (MNE) be considered as single firms rather than separate ‘fictitious entities’ to reduce tax evasion.

Treating the corporate group of international firms as a single company would make it possible to assess its business activities in any given country and require it to pay the taxes due to that country. The significance of this proposal cannot be overstated in view of the reality that tax avoidance is deeply embedded in the business models of most multinational companies including home-grown ones who either export their finished products or import the bulk of their raw materials.

What is reprehensible about these practices is that they seduce other firms to follow suit with the possibility that a country could easily find itself with only a few SMEs to tax because their larger counterparts have learnt the ways of the multinationals and opened ‘fictitious entities’ in countries that have low taxation such as Mauritius and United Arab Emirates, to name just two.

The group of experts also raised a red flag on the now ‘fashionable’ practice of signing tax treaties among countries that have radically different tax regimes. These treaties have all too often emphasised prevention of double taxation and ignored the equally important purpose of ensuring that the companies operating in these countries pay the appropriate taxes.

Although the jury is still out on whether the OECD countries will accept the proposals and implement them, developing countries like Kenya have no choice but to keep, or even up, the pressure to ensure their citizens get the benefit of the taxes they deserve. A situation where a company earns billions of shillings a year but ends up paying less in taxes than its lowest paid worker should not be allowed to continue for much longer.

Continued failure by Treasury to come up with legal measures that would force these companies to come clean and pay their fair of taxes robs KRA of the moral authority to go after the SMEs, boda boda operators and land lords demanding that they, too, pay their taxes.

The SMEs owners are particularly piqued by the demand for taxes when they see the large companies competing with them getting away with excuses that they are making losses, year in year out, when it is clear even to a layman that these big companies are doing so well that they are spreading their tentacles to new sectors.

KRA’s bid to spread the tax net wider would be made easier too were the entire government, particularly at the counties’ level, exercise greater prudence in the use of public resources. It makes no sense to struggling business people to expect them to dig deeper into their pockets to pay taxes only to see them wasted in questionable expenditures.

The don’t-care attitude adopted by these public officials when the Auditor-General raises questions about such expenditures should be discouraged at all costs because it is not only galling to the existing tax payers, but also discourages those who are not paying from coming forward.

But, after all is said and done, KRA’s vision and ambition deserves every one’s support because it promises to usher in an era of deficit-free budgets and the freedom to chart the way forward without looking for outside assistance.

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