Report: Kenya's tax incentives boon for the rich as poor suffer

KRA official (left) assists a client to file tax returns at its Nyeri offices on June 29, 2019. [Kibata Kihu, Standard]

The government is giving rich individuals and multinationals too many tax incentives at the expense of millions of ordinary Kenyans bereft of critical public services.

This is according to a new report authored by various civil society organisations that now want the government to be more transparent in publishing tax expenditures, which is one of the benchmarks in the programme that Kenya has with the International Monetary Fund (IMF).

“While Kenya, may have some of the highest standard corporate income tax (CIT) rates in the East African region, it offers some of the most permissive incentives,” reads part of The Kenya Fair Tax Monitor Report compiled by Oxfam and Tax Justice Network.

The lobbies noted that Kenya provides a wide range of incentives in the form of capital deductions, tax holidays, special rates in free zones and exemption from certain income taxes, amongst others.

The government has been handing these tax holidays to companies, whose turnover runs into billions of shillings every year, in what is justified as incentives to draw in more Foreign Direct Investments (FDI) while promoting domestic investment and exports.

Estimates by the Kenya Revenue Authority (KRA) show that in the financial year ending June 2021, the government lost Sh259.5 billion (about 2.15 per cent of the country’s Gross Domestic Product (GDP), or the value of all goods and services produced in the economy).

This is more than enough to construct, rehabilitate and maintain roads in the current financial year ending June 2023.

In 2017, Kenya lost up to 5.15 per cent of its GDP and 2.96 per cent in 2020 through generous tax incentives, noted the 2022 report whose overall goal is to strengthen advocacy activities at the local and global levels.

Tax holidays and incentives specific to Export Processing Zones (EPZs) are considered the most harmful but are not included in the 2021 report.

“This puts to question the cost-effectiveness of tax incentives in such zones. Kenya continues to pursue the use of free zones to attract foreign investment by establishing Special Economic Zones,” say the lobbies in the report. They note that the proliferation of these incentives is worsened by a lack of a coordinated regime in providing and administering the incentives within the free zones.

“There is a growing lack of transparency in the administration of tax incentives in Kenya evidenced by her failure to publish tax expenditure information,” says the report.

John Oduk, in charge of policy research and advocacy at The Institute of Social Accountability noted that a significant amount of the country’s revenue is lost due to the involvement of a large number of government agencies being involved in issuing these incentives.

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