Kenya losing Sh100 billion annually on tax exemptions

By John Njiraini

Kenya is losing over Sh100 billion annually from a number of tax exemptions, most of which are “unnecessary”, while others fuel corruption.

Economic Secretary Geoffery Mwau said on Tuesday the Treasury would abolish tax exemptions deemed unnecessary and those being abused by unscrupulous traders.

“We are losing Sh100 billion annually from such moves. This is a huge amount. That is why we plan to eliminate some of them,” he said.

Speaking during a forum on Tax Justice, Dr Mwau singled out the removal of tax on maize imports to allow the country replenish maize stocks at the height of a severe shortage in April, stating the move only benefited businessmen involved in the importation business.

During the time, the Government also abolished duty on wheat and removed duties and levies on kerosene.

“When these trades import maize duty free, they do not pass the benefits to Kenyans,” he said.

He also noted that tax incentives granted to investors in the Export Processing Zones (EPZs) have not been beneficial to the country and could be abolished in the near future.

Tax governance

To encourage investors in the zones, the Government offers a sweetening deal that include a 10-year corporate income tax holiday, a 10-year tax withholding holiday, exemption from value added tax (VAT) and customs import duty on inputs.

“The EPZ exemptions have not benefited us. We think the key to success of the EPZs is not the exemptions but reducing the cost doing business,” he said.

Dr Mwau said the Government is undertaking a complete overhaul of the country’s tax regime to boost revenue collection with the aim of increasing tax ratio to gross domestic product that currently stands at 21 per cent.

VAT, under which most of the tax exemptions have been granted, is in the process of being reformed and a reviewed Draft VAT Bill is waiting tabling in Parliament.

The new law aims to eliminate inefficiencies and ease compliance. Also in the pipelines are plans to harmonise tax regime within the East Africa Community to curb tax invasion including smuggling and diversion of goods destined for exports.

The forum, organised by the East Africa Tax and Governance Network, aims to push for equal sharing of the tax burden. During the 2010/2011 fiscal year, the Kenya Revenue Authority collected Sh634.9 compared to Sh534.4 billion collected in 2009/2010.