Lobby wants rich, ICT firms taxed more

The National Treasury. [File, Standard]

Lobby groups have played down the recent new tax measures unveiled by Treasury, saying it was unlikely to grow government revenue.

According to the Institute of Public Finance Kenya and the East African Tax and Governance Network (EATGN), the new Income Tax Bill might be unveiled by Cabinet Secretary Henry Rotich sticks to old models of raising revenues that only tend to protect the rich, but are punitive to the poor and small businesses.

The tax lobbies reckoned that Treasury should give poor Kenyans and small and medium enterprises breathing room and instead tax the rich as well as exploring modalities of roping digital companies into the tax bracket.

“It should consider scrapping or at least reviewing Double Taxation Agreement it has with other countries, which are used by global firms in Kenya to dodge taxes,” they said during a tax briefing yesterday.

The Institute of Public Finance Kenya and the East African Tax and Governance Network (EATGN) said the measures proposed in the Income Tax Bill follow a beaten path that has in the past failed to increase the tax base while at the same time being lenient on the rich and punitive on the poor and small businesses.

The Bill proposes a 35 per cent rate of income tax for businesses with a turnover of more than Sh500 million and for those earning more than Sh9 million per year.

James Muraguri chief executive IPF Kenya said these thresholds should be lowered to include firms with annual revenues of more than Sh100 million and individuals with salaries of more than Sh500,000 a month.

“For taxable income exceeding Sh500 million, a rate of 35 per cent will apply. This is an ineffective provision as Kenya does not have a lot of companies that make it to this threshold. Tax legislation in so far as practical should reflect the context within which companies operate in its jurisdiction,” said Muraguri.

Accordingly, it is recommended that the threshold of Sh500 million be lowered to at least Sh100 million to ensure there is a higher tax collection from those earning more and generate available revenue to limit the growing debt crisis, he said. “The higher rate of tax at 35 per cent that is proposed to be imposed upon any individual earning more than Sh9 million per annum (Sh750,000 per month) results in a very narrow tax base or none at all,” noted Muraguri.

“The taxpayer pool earning this stipulated amount is supposedly only a handful and that does not translate in any tax at all. The 35 per cent rate should instead apply to any individual earning Sh500 000 per month.”

In the Income Tax Bill, Treasury also fails to make proposals on how it will go about taxing Internet-based firms. There has been a proliferation of online firms offering various services that have resisted regulation such as taxi-hailing apps Uber and Taxify and lending apps Branch and Tala.

“The tax base has not fully been exploited by the Income Tax Bill due to a disconnect between technology taxation and sustainable revenue mobilisation… a tax system should respond to emerging market trends,” said Leonard Wanayama of EATGN.