KRA Needs New Tax Regime
Kenya Revenue Authority needs to come of age by introducing new tax regimes and review the old ones, to enable them tap into the untaxed community, enhance revenue collection, improve tax administration and reduce compliance and collection costs in order to realize huge returns.
For a long time, the Tax man in the country has been criticized for using old taxing system which has been termed as burdensome in terms of time taken to prepare and submit tax returns and which also has many loopholes that have resulted to losses running to billions of shillings in tax collection.
KRA under the current VAT Act which is under reforms is said to lose over Ksh1.5 billion every month in refunds arising from excess input tax due to zero rated goods and physical capital where input tax is Ksh1 million and above, provided that investments are used for production of taxable supplies.
Experts are of the opinion that the tax man can reverse losses into profits by either using modern innovative ways of collecting revenues or scraping out obsolete incentives and tax exemptions.
Kenya has a lot to learn from its development partner China which has resulted to use of unconventional but acceptable methods of raising more revenue. China has used its cultural events to generate revenue. Number 8 being a special number to the Chinese the tax man has tapped into it and sold car number plates with the figure 8 at a higher price and this created huge revenue.
The ongoing tax regime reforms, if effected, could earn Treasury billions of shillings annually through better collection of value added tax, widening tax brackets and cutting exemptions on imports.
Kenya is said to offer 150 percent as incentives for investors wishing to indulge in business in the country. This is financial drain to the country rather than a tool for promoting investment.
Tax experts say there are scopes for revenue that the Government can use which include taxing idle land in the country, introducing inheritance tax and scraping capital gains (compensating tax).
The Government can also tap into the ever growing informal sector and get extra revenue from small businesses especially the real estate through turn over tax.
Although it is a move that will face resistance and incur losses for the businesses through earnings they get from tax refunds, the move will push them to more innovations which will boost competitiveness of the firms and expand tax base to raise additional revenues by bringing in the informal sector into the picture.