Tax incentives cost Kenya Sh100 billion

budget deficit

The study says that if the multinationals are taxed, the money collected could help bridge budget deficit and lessen the tax burden on Kenyans.

Speaking at the official launch of the ‘Tax Justice Campaign’ yesterday, Pascaline Kangethe, Technical advisor ActionAid said tax incentives are a product of poor policy making and corruption. “Instead of the proposed VAT Bill for instance, the Government cut tax incentives, like holiday and ensure equity in tax remittances. It is a paradox how Government puts in measures for ordinary Kenyans to pay their taxes whereas big company’s walk free,” she said.

The campaign aims to shame companies that dodge tax payment and it will end in 2017. 

The campaign roots for elimination of all tax holidays. It also wants the State to review all tax incentives and expenditure to ensure they are well targeted and benefits citizens.

Action Aid also wants the State to publish a costing and justification report for each incentive offered.

Kangethe expressed concerns on how county governments are wooing investors with unclear incentives such as land deals, tax breaks and other unclear tax deals so as to set up business in their counties. “If left unchecked, these incentives will be the haven of corruption in the counties and give unfair competition to local investors,” she added.

The recommendations urge the State to coordinate statutory tax incentives with neighbouring countries to counter tax competition.

 court verdict

It calls on Kenya should refrain from entering stability clauses when negotiating new tax incentives and investment agreements. Recently, the Government took Karuturi Global Ltd, the world’s biggest producer of cut roses, to court for alleged $11 million of tax evasion and found it guilty.

The report points out that in 2008/9, the Government gave away Sh10.3 billion ($123 million) in generalized investment promotion incentives, about Sh10 billion in incentives for exporters and about Sh5.7 billion ($68 million) through special economic zones. Halakhe Waqo, Ethics and Anti Corruption Commission chief executive said that Kenyans ought to whistle blow on corruption activities and demand accountable and transparent services.

“With devolution in place, citizens should be keen on safeguarding county resources and should thus push for a clear system to account for procurement activities,” he said.

 An East African Community report gives the cost of import exemptions for Kenya, Uganda and Tanzania to be over Sh84 billion ($1billion) in 2008 alone.

This comes shortly after the National Treasury plotted to introduce the controversial VAT Bill 2013 as a means of raising revenue.

The report recommends audit of tax incentives as well as have it opened up to public and private scrutiny. ActionAid said the State should conduct a national audit to uncover and cost all tax incentives already in place.