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Consumption-based taxes such as VAT, excise duty tax and customs are charged for spending on goods and services. [PHOTO:FILE/STANDARD]

Business News
Kenyans should brace for tough times ahead as the Government moves to implement two pieces of tax legislation to plug the ballooning budget deficit.

Kenyans should brace for tough times ahead as the Government moves to implement two pieces of tax legislation to plug the ballooning budget deficit.

According to analysts PriceWaterhouseCoopers (PwC), the Government will be keen to implement the Value Added Tax (VAT) Act 2013 and Excise Tax Act 2015 in a bid to help the Kenya Revenue Authority’s (KRA’s) meet its revenue collection targets.

Despite the two pieces of legislations having been in place for some time now, the taxman has continued falling short of its collections targets. However, the revenue collection has improved. Last year, KRA collected a total of Sh1.3 trillion compared to the Sh1.02 trillion it managed in the previous year.

A huge chunk of the country’s total revenue came from Pay-As-You-Earn (PAYE) taxes, which stood at Sh330.5 billion, compared to Sh279.8 billion in 2014. Already, Kenyans have started feeling the weight of a heavy tax burden as the Government added new products into its tax bracket.

SEE ALSO: Consumers to pay more for goods as taxes take effect

VAT has since been extended to books and learning materials, sifted maize flour, sanitary towels, newspapers, journals and periodicals, rice, wheat flour, bread, computers, computer software and processed milk.

According to the Economic Survey 2016, revenue from income tax and VAT are expected to grow by 24.7 per cent to stand at Sh144.5 billion as the Government moves to enact the Excise Tax Act 2015. The Excise Act has led to the expansion of the tax bracket to include such products as airtime, juice, mineral water and soft drinks. Others products that have been subject to the “sin tax” include beer, wines and spirits, whose punitive levies the State has justified as a way to discourage their use.

VAT rose to Sh324.9 billion in 2015 from Sh259.6 in 2014. The Government got Sh144.5 billion from excise tax and Sh82.5 billion from customs. Job Kabochi, a partner at PwC, said the Government is keen to move away from a tax regime that relies heavily on employment to one that relies more on consumption.

Last year, tax collection was mostly driven by PAYE, a situation that Kabochi said puts the country’s revenue collection efforts at risk.

“It is quite volatile in the sense that any adjustments in relation to people being employed directly affects our collection as a country,” said Kabochi, adding that the global trend has been consumption-based tax.

SEE ALSO: Over 4m Kenyans file tax returns, non-compliant to face consequences

Consumption-based taxes such as VAT, excise duty tax and customs are charged on spending on goods and services. The experts noted that there have been some “quick wins” on tax administration reform, including the implementation of iTax, which has helped the taxman get access to some vital data.

“The next step is now to leverage on that data,” said PwC director Titus Mukora. However, the analysts noted that it would be a little difficult for the Government to expand the tax base to include the informal sector. Mukora said as desirable as the prospect of taxing the informal sector might be, it would be an uphill task. Mukora said that defining the informal sector would be a problem.

However, the expert said consumption-based tax, where levies are collected by certain corporates as and when they are consumed, would be advantageous to the players in the informal sector who might be put off by the complex tax culture of filing returns.


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