Premium

KRA could come hard on you as Ruto pushes for Sh3 trillion tax

President William Ruto during the 2022 Taxpayers’ Day at the Kenyatta International Convention Centre, Nairobi on October 28, 2022. [William Ruto, Twitter]

Kenya Revenue Authority (KRA) is expected to tighten the noose on taxpayers after President William Ruto set a target to double tax collections by the end of his first term in office in 2027.

He gave KRA a target of Sh3 trillion by the end of the next financial year and to double it over the next five years, noting that while improving, tax collections remain far below the potential.

KRA collected Sh2.03 trillion in the financial year to June 2022. The directive to increase tax collections came even as the President and his deputy Rigathi Gachagua came down hard on KRA for what they said was harsh treatment of taxpayers.

At the same time, workers are set to be hit with higher salary deductions as the government increases compulsory contributions to the National Social Security Fund (NSSF) after unlocking a long-running stalemate with employers and trade unions. 

Workers in formal employment could pay up to six per cent of their salary from the Sh200 per month they have been saving for old age through NSSF. Employers are expected to match that with another six per cent.

President Ruto yesterday said the National Treasury would gazette the new NSSF rates following an agreement with Federation of Kenya Employers (FKE) and the Central Organisation of Trade Unions (Cotu) Kenya.

The NSSF Act 2013 had sought to increase contributions to six per cent but has been blocked by court cases. “We passed the law on contributions to NSSF in 2014. It has been in court for nine years, the potential for it being in court for another nine years is real," said President Ruto during Kenya Revenue Authority’s (KRA) National Taxpayers’ Day in Nairobi.

"We decided to call Cotu, FKE and others and we had a frank chat, and today we are gazetting the new regulations for NSSF,” he said.

The High Court recently declared some sections of the NSSF Act, 2013 unconstitutional, but Ruto and his government have pushed on with the plan to increase pension contribution, saying that the current rate is too low.

NSSF Managing Trustee Anthony Omerikwa yesterday confirmed the rates are about to go up. "You know very well the propensity for working individuals to save globally and specifically in Kenya in very low and as such, it is the responsibility of government under the Constitution to occasion it," he told Saturday Standard.

"The rates will go up to a minimum of six per cent from the employee and a minimum of six per cent from the employer."

Meanwhile, Kenyans owning land under the freehold tenure system are also set to start paying land rates.

To pave way for this, the President said the national government had convened talks with the Nairobi governor and the Chief Justice, which had resulted in ironing out of issues that had prevented the setting up of the land rates valuation code.

Absence of the code had prevented the government from collecting taxes and levies from land owners, which the president noted amounts to billions of shillings per year. “To collect the rates and rents, we did not have a rates valuation code because the law had a problem," Ruto said.

He added: "When I asked how we would sort it out, I was told that there is a law that is waiting to go to parliament and once it is passed, then we can have the rates valuation code, which we have not had for a number of years. What that has done is that there is a pile of cases over 6,000 in Nairobi, locking the opportunity for us to raise taxes. With just little consultation with the governor of Nairobi and the Chief Justice, today the valuation rates code is being gazetted.”

In citing the two cases, Ruto was telling KRA to quit being too combative in tax administration and instead work with taxpayers in improving compliance.

“There are alternative mechanisms of getting things done,” he said. They said the taxman had taken to harassment as a way of tax administration to the extent that traders are traumatised whenever they see KRA officials.

Among the new areas the president noted are a low hanging fruit that remained unexplored is the taxation of wealthy Kenyans, whom he said are undertaxed.

He also directed KRA to seal revenue leaks, evaluate ways to expand the tax base while approaching the taxpayer in a non-confrontational but firm manner so as to increase tax collection in line with his new targets.

“I expect KRA to raise Sh3 trillion by the end of the next financial year and to double the current collection in five years,” Ruto said. He said his administration would ensure all taxpayers paid their fair share of taxes while avoiding instances where a segment of the population is overburdened while the other has it easy.

“KRA must also reflect equity by shifting from the over-taxing of trade and under-taxing of wealth, to enable the wealthy bear an appropriate burden. As I have said before, our operating philosophy in matters revenue mobilisation is going to be hierarchical. This means that we shall tax wealth, consumption, income and trade in that strict order."

KRA surpassed its revenue collection targets for a second year in a row during the financial year to June 2022. The authority collected Sh2.03 trillion during the year, which was against a target of Sh1.976 trillion set by Treasury.

The taxman said the higher collections was against improved compliance from taxpayers.

Ruto, however, said while KRA has made major gains and met revenue collection targets, it is underperforming when compared with the past where tax collections at some point accounted for 18 per cent of gross domestic product (GDP).

This is unlike the scenario today where tax collection accounts for 12 per cent.

“In the past revenue collection registered a dramatic growth. This was a result of an effective national mobilisation strategy which appealed to our fundamental values and identity, and employed citizen education, engagement and facilitation," he said.

The president said the consequences are painful to contemplate. "Our GDP has risen to Sh12 trillion, yet KRA only raised about 14 per cent of it in revenues last year. In the past KRA was able to raise 18 per cent of GDP. If we collect the same target today then would have raised an extra Sh400 billion.”

Ruto said KRA had performed dismally in growing the tax base, adding that using technology, the tax authority could bring in more people into the tax paying fold. “The imperative of embracing technological solutions to KRA’s strategic issues is clear," he said.

"There are only seven million people with KRA PIN numbers. At the same time, in the same economy, Safaricom’s M-Pesa has 30 million registered customers, transacting billions daily. The fact that this opportunity remains unclear to KRA demonstrates why radical changes are necessary. Every Kenyan with an ID should have a PIN number."

At the same time, the president said there are leakages within KRA that if sealed could lead to increase in tax revenues.

“We are selling 2.9 billion stamps for excisable products while our neighbour Tanzania is selling 7.2 billion stamps and Uganda nine billion. Those two economies are smaller than ours," he said, adding that Kenya should be selling between 10 billion and 12 billion stamps. 

Mr Gachagua said the government would try and facilitate businesses and not stand in the way of industry.

“Our work as public officials is to support and facilitate business. That policy direction has trickled down that public officials have no business standing in the way of business, being a hindrance, creating road blocks," he said.

Business
Cruise ship carrying 795 tourists docks in Mombasa
Business
State to roll out 10,000 water projects to ease shortage
By Brian Ngugi 10 hours ago
Business
Retailers and city landlords in the crosshairs of data watchdog
By Nathan Ochunge 10 hours ago
Business
Unions, FKE reject radical pro-workers Bill