In their quest for independence from the British in the 18th century, Americans threatened to stop paying taxes, arguing that there would be no taxation without representation.
Well, this might not be exactly how the Kenyan taxpayer feels today since Kenyans broke free of the chains of colonialism more than 50 years ago, but they certainly feel highly taxed and less represented.
As 2016 begins and he settles at his desk, Treasury Cabinet Secretary Henry Rotich will have limited options when it comes to plugging the ever-widening budget deficit. Borrowing either locally or from the international market is fast turning into a red-line. But can he increase tax measures in 2016?
A tax partner at audit firm Deloitte Fred Omondi is of the opinion that although the Government needs to fund its expansive budget, raiding the taxpayer’s purse should not be on the cards.
“They need to fund the budget but taxpayers are looking at how efficient they can be,” he says, noting that despite giving a lot in terms of taxes, the taxpayer does not see the fruits of compliance.
“The economy is under-performing but taxes are increasing,” stated Omondi, noting that in the three years that the Jubilee government has been in power, Kenyans have been slapped with more new tax measures than any other time. Omondi reckons that with this level of taxation, Kenyans need to see double-digit growth.
The new tax measures that have since been introduced to plug the burgeoning budget deficit include the removal of zero-rating and exceptions on VAT for some commodities. The new VAT law, which came into force in September 2013, saw the Government go after previously exempted or zero-rated supplies such as sale of commercial buildings, the management of unit trusts, credit rating bureau services, tour operator and travel agency services, cut flowers, cinematographic films and wood charcoal. These now attract the standard VAT rate of 16 per cent.
Other formerly zero-rated supplies that now attract a 16 per cent VAT are; the first 200KWH of supply of domestic electricity, services in respect of goods in transit, books and similar printed material, mosquito nets, motorcycles, medical equipment and animal feed.
Also, zero-rating for such supplies as milk specially prepared for infants, medicines, certain fertilisers, sanitary towels, maize, wheat flour and bread has been removed. These supplies, which were previously zero-rated, will be subject to reduced rates, or the taxman will go after only a portion of items.
There is also the new excise duty that has seen the Government go after basic commodities such as fruit juices, soda, bottled drinking water, motorcycles and imported second-hand cars. This is in addition to the traditional ‘sin products’ such as tobacco and alcoholic beverages.
Landlords and property owners have also not been spared. A new residential rental income tax, which is expected to kick in this year, will see landlords owning residential properties and whose annual rental income is below Sh10 million annually, part with 12 per cent of gross rental income.
And with everyone angling for the big day when they can win a jackpot, the Government has smelt good money from the gamers and has since re-introduced a simplified gaming tax. This shall be a direct charge on the gross gaming revenue. Public lotteries shall be taxed at 5 per cent of the lottery turnover and bookmakers shall be taxed at 7.5 per cent.
Also, all prize competitions whose costs of entry are premium shall be taxable at 15 per cent of the total gross revenue. However, despite all these new tax measures, the Government does not seem have demonstrated efficiency in its use of the revenue.
According to the auditor general’s report, the Government could only account for 12 per cent of its total revenue for financial year 2012/2013. The auditor general gave 13 per cent of the revenue an adverse opinion, meaning the financial statements he received were either “misleading or incomplete”.
On expenditure, the auditor fears Sh67 billion could be lost. Indeed, the Government could only account for 1.2 per cent of its expenditure, which is the expenditure that the auditor gave an unqualified opinion. In other words the auditor general, Mr Edward Ouko, concluded that only Sh12.5 billion of the Government’s Sh1 trillion expenditure had financial statements, which gave “a true and fair view” or were “presented fairly”.
Tax experts think Mr Rotich needs an efficient system to collect more taxes to rope in the informal sector, especially compliance on rentals and property.
Also, Treasury promised a lot of money for refunds, but they have not been quick in giving these.
“A law should provide a period in which refunds should be made, not Treasury,” offers Omondi.