Tax hike fears as State readies for fiscal reforms

Treasury Cabinet Secretary Henry Rotich. (Photo: Courtesy)

Workers and companies could soon be hit with more taxes as the Government moves to reform the income tax law.

The National Treasury is expected in a week’s time to publish draft income tax legislation that seeks to radically overhaul the country’s outdated income tax laws.

Treasury Cabinet Secretary Henry Rotich said yesterday the Government was keen on overhauling the 1974 Income Tax Act in a bid to increase revenue, improve tax administration and seal tax loopholes but declined to comment on whether or not the changes would see a rise in taxes.

While ruling out fresh borrowing to finance Government spending, Mr Rotich maintained that the proposed tax reforms and austerity measures already in place would help contain the country’s budget deficit to 6.4 per cent.

He also cited cutback on domestically-funded infrastructure projects as a way to maintain the fiscal discipline needed to maintain economic growth.

The Government has insisted that it will maintain the gap between what it can raise from taxes and the expected budget at Sh535 billion to achieve a budget deficit of 6.4 per cent of GDP, down from 8.5 per cent recorded in the last financial year.

Treasury introduced austerity measures, including banning foreign trips, as well as cuts on local trips, training and hospitality, which went to finance the repeat elections and mitigate the drought effect as well as finance free secondary education. However, according to the latest Treasury projections, the fiscal gap is expected to be bigger and estimated at Sh691 billion, which would put it at 7.9 per cent of the GDP.

Under the new tax reforms, the income tax, which makes up 40 per cent of the Government’s tax revenues, includes Pay As you Earn (PAYE), corporate tax, withholding tax and turnover tax.

“We are reforming the income tax law… in the next one week, it will be made public for comment. We will engage tax experts and the public before we adopt the more modern tax measures,” explained Rotich yesterday during a media briefing on the State of the economy.

He said this would be the last tax law to be overhauled after the Government replaced the 1989 Value Added Tax law in 2013, the Excise Tax Act and the East Africa Customs Management Act last year.

“What we had been doing in the past is adjusting it (income tax laws) through the Finance Bill, but now we have comprehensively reviewed it,” said the CS.

In the run-up to the elections, the Government handed lowly-paid workers relief by expanding tax bands by 10 percentage points and increased the monthly personal relief from Sh1,162 to Sh1,280 in June last year.

Although the Cabinet Secretary refused to divulge the contents on the proposed Bill and whether it will lead to higher taxes, he indicated that the move was part of a wider scheme to net more taxes to finance the budget which only points to higher taxes.

“In the next one week, you will see our draft and what it says. It may take into account what we have changed over the years, but there are many things, including tax base widening, the progressiveness of the tax and some principle of a good tax system that we have to follow first,” he said.

Mr Rotich said Kenya Revenue Authority, whose tax collections had fallen short by Sh40 billion in the first four months of the 2017/18 (July-June) fiscal year, will institute means of recouping the lost revenue through administrative changes, including the adoption of the proposed income tax review.