Kenya's tax income hits Sh1tr, but falls short of KRA target

Moses Michira Members of the public some assisted by [KRA] officials filled up Kenya Revenue Authority Tax annual forms at headquarter in Nyeri Town to beat the deadline. PHOTO KIBATA KIHU/STANDARD.

NAIROBI: The Kenya Revenue Authority (KRA) missed its collection target by Sh86 billion in the last financial year, according to its full-year revenue report released yesterday.

The taxman collected just over Sh1 trillion against a projection of Sh1.086 trillion made by Treasury Cabinet Secretary Henry Rotich in the 2014-15 Budget.

While revenue collection rose almost four per cent compared to the previous year, this was its slowest growth in the last decade.

KRA Commissioner General John Njiraini is betting on new measures to enhance compliance and boost revenue collection in the future.

“If we have already been able to achieve an annual growth rate in tax revenue of 15 per cent for the last 10 years, we should even see better achievements in the future based on what we have put in place, and the action that we are taking to encourage Kenyans to partner and work with us,” he said.

Revenue collections this past financial year are thought to have come in below expected levels over low compliance.

DECLARING LOSSES

KRA said an audit on multinationals had revealed Sh25 billion in taxes had been dodged through the abuse of transfer pricing guidelines.

Officials in the transfer pricing unit have intensified tax audits on huge corporations to tackle avoidance, and about 60 international companies were found to have shifted profits since 2008 while declaring losses in their Kenyan operations.

Transfer pricing audits are among the measures the revenue collection agency has taken to plug losses and raise the funds required to finance a growing national budget.

It has also enabled online filing of tax returns, and announced in a statement yesterday that the manual system would be discontinued.

“In this regard, all VAT, PAYE and Income Tax filers are advised to file their tax returns due in August 2015 in the iTax system. No manual VAT, PAYE and Income Tax returns will be accepted with effect from 1st August 2015 at any KRA office.”

More than two million taxpayers are registered on the iTax system, KRA added.

Mr Rotich has also drafted various measures that could enhance revenue collection, while also offering rare taxation relief.

Thousands of Kenyans are due for a reprieve from the sale of property, with a pending review of legislation to raise the minimum taxable transaction 100-fold to Sh3 million.

The proposed amendments are contained in the Finance Bill 2015, and would be effective from January next year.

Rotich also proposes to tax transactions on agricultural land exceeding 50 acres, down from 100 acres.

The revised guidelines on property come into effect on the same date traders in shares start paying a flat rate of 0.3 per cent of transaction values in a simplified regime.

CURRENT GUIDELINES

Under the current guidelines, which were drafted over four decades ago, land owners are required to pay a 5 per cent tax on capital gains upon completing a property transaction.

Costs of improvements on the property are, however, deductible, giving the sellers a free hand in determining the gains in a regime that relies on the honesty of the taxpayer.

Capitals gains of Sh30,000 and above are subject to taxes in the guidelines that were reinstated in January this year after being suspended in 1985 to encourage investment in property and the stock market.

Developments in the economy, such as the sharp appreciation in property values, mean that the lower limit set for capital gains would affect most land and house transactions since property values would almost always have appreciated by more than Sh30,000. In a lot of cases, however, expenses on land improvements are exaggerated to lower the capital gains, effectively reducing the applicable taxes.

KRA could be betting on the simpler guideline that requires a seller to pay a proportion of the closing value as tax, rather than going the more complicated route of taxing the capital gains.

The proposed measures are part of KRA’s plans to widen the tax base in the race to meet record revenue collection targets set by the State. Increased expenditure on infrastructure projects has mounted pressure on Government spending, resulting in the need for more resources.