Foreign firms on the spot as KRA hunts for Sh6 trillion revenue

Kenya loses billions of shillings in foregone revenue from traders under-declaring or overestimating the value of import and export goods.[File, Standard]

Kenya Revenue Authority’s (KRA) projection in its strategic plan for the next three years to collect Sh6 trillion in domestic revenue by 2021 sounds too ambitious by all standards.

According to the taxman, the revenue targets will be met by increasing the number of taxpayers in the country from the current 3.9 million to seven million by 2021. This will be supplemented by boosting compliance among existing ones.

"This will be achieved through investments in technology and reforming business processes that we believe have provided the foundation for us to do much better," said KRA Commissioner-General John Njiraini during the launch of the firm’s seventh corporate strategy.

Mr Njiraini said KRA’s investment in technology has seen the taxman improve the regulator’s database on corporate and individual taxpayers, closing avenues often exploited for tax evasion. "We are seeing incredible results from the intelligence we are collecting and we believe the seventh corporate plan will be a different ball game," he said.

Last year, Treasury introduced the presumptive tax through the Finance Bill 2018 that will see Small and Medium Enterprises (SMEs) earning less than Sh5 million each year pay 15 per cent of the amount payable for their business permits.

The tax, which came into force this month, was meant to enforce compliance in the informal sector, where the State has for years tried unsuccessfully to widen the tax bracket. "Presumptive tax was specifically introduced for the sector that has not been enabled to comply with taxes and it targets SMEs," said Maurice Oray, deputy commissioner of corporate policy.

Mr Oray said the presumptive tax is meant to help the Government raise revenues for funding the ambitious Big Four agenda.

Analysts want KRA to train its guns on large taxpayers dodging taxes running into billions of shillings through fraudulent schemes, instead of burdening individuals and small businesses that form a small percentage of the revenue basket.

"While we understand the need to broaden the tax bracket and raise more revenue, charging SMEs 15 per cent presumptive tax is on the higher side and could dampen compliance," explained Leonard Wanyama, coordinator of the East Africa tax and Governance Network (EATGN).

A report by international think tank Global Financial Integrity released in October last year said Kenya loses billions of shillings in foregone revenue from traders under-declaring or overestimating the value of import and export goods.

"We find that Kenyan imports of cereals from Pakistan, mineral fuels from India and, more generally, imports from China to be particularly prone to potential revenue loss to the Government of Kenya due to under-invoicing," explained GFI in the report.

The report analysed trade figures between Kenya and her bilateral partners and estimated the country lost Sh90 billion in 2013 alone, with GFI saying the figure was conservative and the loss could be much higher if other trade data is factored.

"For 2013, we can reasonably identify potential revenue losses in excess of Sh90 billion or about eight per cent of total Kenyan government revenues," said the report in part.

Mr Wanyama says KRA can bridge revenue shortfalls if it shifted focus to policing compliance on the part of large corporate taxpayers instead of slapping small businesses with punitive rates.

"In Uganda, the presumptive tax rate is 1.5 to three per cent and we have heard reports of Kenyan businesses along the border move to Uganda to avoid paying the new rates,’ he explained.

EATGN has submitted proposals to the Treasury seeking revision to the Income Tax Bill 2018.

"Regrettably, the Income Tax Bill 2018 does not reflect the principles of equity, social justice, inclusiveness, equality, human rights, non- discrimination and protection of the marginalised," states the tax lobby group in part.

EAGTN says the tax introduced this month should be revised from the current 15 per cent to between one and three per cent to boost compliance. The lobby group also wants Treasury to widen the tax base of companies charged 35 per cent income tax.

"The provision for charging 35 per cent for companies with incomes exceeding Sh500 million is an ineffective provision as Kenya does not have a lot of companies that make it to this threshold," explained Wanyama.

EAGTN recommends that the threshold of Sh500 million be lowered to Sh100 million to up the revenue haul and facilitate KRA to achieve its targets.

The proposals also touch on individual earners, saying the 35 per cent higher tax rate on those earning more than Sh750,000 per month constitutes a narrow tax base.