Experts decry volatile tax regime as Treasury proposes new levies

Fred Omondi Deloitte East Africa tax and legal leader brief media at Deloite house when the firm held a forum to analyze the Finance Bill 2023. [Waweru Murage, Standard]

The government's frequent change of various taxes as well as the reintroduction of proposals after they have been shot down is now coming under scrutiny.

The National Treasury has in the Finance Bill 2023 made proposals on new tax measures that are expected to increase tax revenues over the 2023/24 financial year.

Some of these proposals, tax experts say, have projected the country's taxation regime as one that is highly unstable, exposing taxpayers to frequent shocks and making it difficult for businesses and even individuals to plan and even comply with the new taxes.

Treasury has also been criticised for re-introducing proposals that have in the recent past been declined by the public - including Parliament - owing to such factors as expected impact on the cost of living as well as doing business in the country.

Among the proposals in the Finance Bill 2023 that tax analysts say have been through frequent changes include the changes in turnover tax.

The tax, aimed at making it easy for micro and small businesses to comply with taxation, will go up to three per cent from one per cent if the proposals in the Finance Bill 2023 go sail through. The tax has gone through numerous changes since 2018.

"There are some proposals that were introduced last year and barely one year we are seeing them being changed," said Deloitte East Africa senior tax manager Fred Kimotho.

He spoke yesterday when the company held a forum analysing this year's Finance Bill that was tabled in Parliament last week.

"If you look at the turnover tax, in the last four years or so, there have been several changes to it. This leaves the taxpayers in a bad place because you can no longer predict where the tax policy is headed or how you will be affected."

The turnover tax was in 2018 replaced by presumptive income tax by the Finance Act 2018, but reintroduced the following year by the Finance Act 2019, becoming effective on January 1, 2020.

It was reintroduced at a lower rate of one per cent, from the earlier three per cent. The band has also changed severally at some point covering businesses with a turnover of up to Sh5 million before being expanded to Sh50 million and now proposed to cover businesses with a turnover of between Sh500,000 and Sh15 million.

Other than the turnover tax, the Finance Bill 2023 also proposes to reverse tax exemption granted to the income of companies undertaking the manufacture of human vaccines. It wants these firms to pay a corporate tax at a rate of 10 per cent, which is however still a preferential rate. Last year, the government had said vaccine manufacturers would enjoy preferential corporate and income tax rates negotiated with the government.

The Finance Act 2022, had noted that human vaccine manufacturing firms that make a capital investment of Sh10 billion would be "subject to the rate of tax specified in the special operating framework arrangement with the government".

Experts at Deloitte noted that this would make it difficult for taxpayers to access justice, adding that experience from other jurisdictions shows that tax authorities tend to inflate the tax assessment.