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Audit firm urges Treasury to give six-month tax amnesty

A tax firm has proposed a six-month tax amnesty period be given to those who have not paid their taxes. This is to give them time to come forward and volunteer to pay their taxes in exchange for waiver of penalties and interest.

“Kenya is ripe for a tax amnesty, considering the many changes that have taken place in tax administration since the last tax amnesty in 2004,” said Atul Shah, Chief Executive Officer at PKF East Africa.

The audit firm congratulated Kenya Revenue Authority (KRA) for improving on its tax collection efforts, especially introduction of the iTax system, which is expected to bring thousands of non-compliant tax payers into the system.

KRA in the first quarter of the 2014/15 financial year fell short by Sh17 billion revenue collection after raising Sh241.2 billion during the review period. This amount reflected a six per cent drop in tax revenue collection. Mr Shah and other PKF partners were speaking at the Intercontinental Hotel yesterday during the firm’s pre-Budget briefing.

PKF also urged the Government to subsidise electricity supplied for industrial use to create a robust manufacturing sector. They noted that while power utility firms, including KenGen continue to report billions of shillings in profits, companies such as Magadi Soda have had to close down shop and retrench workers mainly due to high power bills.

“Although the Government has earmarked Sh56 billion for the energy sector, this is not enough because projects to be funded are heavy industries,” said Michael Mburugu, a partner at PKF.

Kenya’s medium term development goals put the country’s installed capacity at 11,000 MW by 2017-2020, but its present level is a paltry 1798 MW. PKF is therefore proposing that the Government provide tax breaks, incentives and support to private companies, especially those seeking to develop wind power to boost its generation capacity.

The audit firm also reckoned that there is no currency crisis and therefore no need to panic even as the Shilling continues to depreciate against the US dollar. “The US dollar has strengthened globally and affected virtually all major currencies around the world. In Kenya, delay in appointing a substantive Governor at the Central Bank of Kenya could have led to lack of pro-active measures to calm the shilling,” said Mburugu.

PKF also said Kenya is on expansionary monetary policy stance and reckoned that borrowing must be external and not domestic so as not to crowd-out private sector from the credit market.

The PKF also proposed that the budget deficits be financed through in partnership with the private sector instead of domestic borrowing to avoid a debt overload. The accounting and advisory firm said development projects should be funded more through Public-Private Partnerships (PPP) to ease State’s limited financing.

“We believe that the Treasury should restrain itself from domestic borrowing and seek to meet the deficit through PPPs. The sovereign bond is a good thing because it will release pressure, but what if we don’t get all the money we are looking for? We need to use PPPs,” said Mburugu.

The budget deficit is projected to stand at Sh342 billion in 2015/16, which will be covered through domestic borrowing (Sh190 billion), sovereign bond (sh132 billion) and Sh20 billion from other sources.

Mburugu warned that the State risked burdening Kenyans with debt if it opts for more domestic borrowing should the revenue targets fail to be met.

The firm was in agreement with a Sh25 billion allocation in the 2015/16 budget to modernize the country’s security system. This money will be used to recruit more police officers and improve on their training.

In order to deal with corruption in the public sector, PKF is proposing that some of the functions performed by the Auditor General’s office be outsourced to the private sector.

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