Kenya to remove some tax exemptions in 2011/12 budget

NAIROBI, Monday

Kenya plans to remove tax incentives in the 2011/12 (July-June) fiscal budget and widen collection to rope in more small businesses to increase revenues, Finance Minister Uhuru Kenyatta has said.

Last week, the International Monetary Fund said east Africa’s largest economy could get an extra Sh40 billion in tax by better collection of value added tax, widening tax brackets and cutting exemptions on imports.

Uhuru said at present, some value added tax exemptions given as investment incentives, were not beneficial and resulted in losses. Kenya’s budget is tight as it puts in place a new Constitution and spends on heavy infrastructure development.

"We are working towards trying to remove some of the types of incentives that had been introduced in the VAT tax regime that are not necessarily useful," Uhuru told a news conference.

"In many ways, they have resulted to leakages and we hope to include those measures in the upcoming budget."

Kenya’s revenue for the first half of 2010/11 (July-June) fiscal year fell short by about Sh5 billion to Sh303.1 billion. Uhuru added that the Government planned to get extra revenues from small businesses that operate informally.

"We are looking at how we can expand the (tax) base to raise additional revenues by bringing in the informal sector to raise additional revenues," he said.

Kenyatta did not give details on specific tax exemptions. Kenya normally holds its budget on the second Thursday in June.

Kenya, a net importer, exempts exporters from paying value added tax, which is charged at 16 per cent.

The International Monetary Fund said the global financial crisis had lead to deterioration of fiscal accounts, which had forced many countries to spend more, but called upon effective revenue collection.

—Reuters