Time ripe for general tax amnesty offer

By Ibrahim Khalif

The Government released the revenue estimates for financial year 2013/2014 recently after having tabled in parliament the expenditure estimates earlier. The 2013/2014 Budget will be the first full year under the new devolved system of government.

The new constitution brought significant changes in our governance structure, including the devolved system of government and numerous independent commissions. It is on the backdrop of the new system of governance and the ambitious Jubilee manifesto that the revenue estimate has been increased by 21 per cent over the revised estimates for 2012/2013.

With the high revenue target, the KRA has its work cut out and it will not be business as usual as the success with which the two tier system of governments carry out their programs will hinge on the effectiveness with which, KRA carries out its revenue collection mandate.

Even though the overall estimated increase in tax revenue is 21 per cent, a closer look at the various revenue heads shows that much of the increase will come from taxes on income, profits and capital gains in addition to excise duty.

Taxes on income, profits and capital gains, which accounts for 48 per cent of the total tax revenue estimate, is expected to grow by 26 per cent, which is the same rate by which excise duty is also expected to grow. This is a very ambitious target by any measures, coming soon after an election year during which economic activities were depressed.

I am sure the Treasury technocrats and their KRA counterparts are burning the midnight oil to come up with strategies to meet this ambitious target. It could be anything from steep increase in “sin tax” to a new income tax top rate of 50 per cent for “high net worth” individuals. It could even be the re-introduction of Capital Gains Tax.

Whatever they have up their sleeves, I have one unsolicited free piece of advice: KRA declare a tax amnesty.

A tax amnesty is a programme by government to offer a period of amnesty to taxpayers who have not paid their taxes to come forward and volunteer to pay their back taxes without fear of prosecution. After the amnesty period expires, the State should pursue defaulters and prosecutes them for tax fraud. The last tax amnesty was on offer many years ago — in 2004.

A tax amnesty, in addition to bringing in immediate tax revenue, has the added advantage of netting new taxpayers who going forward will be in the KRA records and therefore paying their share of taxes.

A quick and more efficient approach would be to initially give amnesty for voluntary disclosure and thereafter go after those non-compliant persons who fail to take the amnesty.

The tax amnesty can also be used to educate the citizens on their fiscal duty. It is also a chance to bring into the tax net, the small and medium business operating in the counties that are not tax compliant as we move into the devolved system of government.

It could also be the solution to the drive by KRA to net those in the real estate industry that are not tax compliant. Even though the KRA has reported progress in this area, it would take long to yield fruits due to the sheer number of persons involved and areas to be covered.

This also being a year of regime change, the amnesty could also present a chance for those who might have been “untouchable” due to real or imagined protection to clean their act and join other law abiding citizens in meeting their tax obligations.

Whichever way one looks at it, a well-managed tax amnesty would pay dividends in both short and long run and is worth consideration by the tax policy makers and administrators.

The views expressed in this article are those of the author and do not necessarily represent those of Deloitte East Africa.