New tax laws to net Sh64b as Kenya moves to plug Budget deficit

NAIROBI: The revised excise duty law is expected to bring in Sh63.6 billion in additional revenue, the Treasury has said, as it moves to plug this year’s Budget deficit of Sh570 billion.

The new tax measures will be the biggest cash cow for the Government this year, with an extra Sh28.4 billion anticipated from smokers, alcohol consumers and motorists.

Treasury Cabinet Secretary Henry Rotich told the International Monetary Fund (IMF) in a communiqué last month that the Government has taken concrete steps to collect additional revenue. He said the measures include “a wide range of revenue-yielding corrective measures, as well as new policy initiatives expected to yield about Sh63.64 billion, or 1 per cent of GDP.

“This includes Sh28.44 billion from the modernised Excise Duty Act 2015, adopted by Parliament in August, that raises specific excises on cigarettes, alcoholic beverages, motor vehicles, motorcycles and fuels,” Mr Rotich said in a letter co-authored with Central Bank of Kenya Governor Patrick Njoroge.

IMPROVED COMPLIANCE

The letter is dated August 31, 2015, and was addressed to IMF Managing Director Christine Lagarde. It was part of the attachments from the Treasury to the fund, as the Government sought standby credit to support the shilling.

Treasury said it would raise Sh5 billion from recent amendments to the Income Tax Act that replaced capital gains tax with a withholding tax.

Another Sh8.1 billion would be raised from higher Value Added Tax (VAT) revenue, reflecting expected improved compliance from identified non-filers via the new iTax system.

An improvement in compliance on customs revenue following the recent adoption of the Electronic Single Window declaration module is expected to net Sh3 billion.

The taxman is expected to collect Sh4.1 billion from real estate from a simplified 12 per cent tax on the gross rental income of individuals. However, the Kenya Revenue Authority’s (KRA) efforts in this sector have been complicated by the lack of a database of landlords, or an addressing system that separates private homesteads from rented homes.

The authority said last week it was targeting to collect Sh3 billion through an amnesty that could also net 20,000 small landlords this financial year.

This year’s Sh2.1 trillion Budget includes higher allocations to support critical infrastructure projects.

“As a result, development spending as a share of total national government spending is set to increase to over 41 per cent in 2015-16,” Rotich said.

This is up from the 29 per cent in 2013-14, and an estimated 36 per cent in 2014-15.