Report: Kenya’s tax system ‘above average’ for Africa

It takes a company an average of 202 hours to comply with taxes in Kenya, against an African average of 313 hours, making the country one of the few on the continent with an above-average tax regime, a new report has found.

Paying Taxes 2016 — compiled jointly by audit firm PricewaterhouseCoopers (PWC) and the World Bank — added that a Kenyan company surrenders 37.1 per cent of its commercial profits to the taxman.

This is more than a fifth below the African average of 46.9 per cent total tax rate — which is the amount of taxes and mandatory contributions a business pays after accounting for deductions and exemptions, expressed as a percentage of its commercial profits.

The country’s businesses further make 30 payments a year against an African average of 36.6.

Still, Kenya was ranked position 101 out of 189 countries, just one position higher than last year. This is despite the country’s tax rate recording a steep decline from 2010, where it stood at almost 50 per cent.

The next ranking is most likely to see the country’s position improve dramatically as Kenya Revenue Authority’s (KRA) electronic filing system, iTax, is taken into consideration. The report is based on data for the year ended December 31, 2014.

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Among African nations, Kenya has the 13th-best tax system, with Mauritius ranked first (13th globally), with a total tax rate of 22.4 per cent. Companies take 152 hours to comply and make eight payments.

Other countries ranked ahead of Kenya are Seychelles, Cape Verde, Zambia, Rwanda, Morocco, Botswana, Madagascar, Swaziland, Tunisia, Djibouti and Namibia.

According to the report, with a total tax rate of 11.3 per cent, 41 days to comply with tax requirements and only four payments, Qatar has the best tax regime in the world.

Coming in last is the tiny South American state of Bolivia, where it takes a company an average of 1,025 hours (42 days) to comply with taxes, 42 payments, and it forks out 83.7 per cent of its commercial profits.

A model company, according to the report, has a total tax rate of 40.8 per cent, down just 0.1 percentage points from last year. It makes 25.6 tax payments a year and takes 261 hours to comply with requirements, a drop of two hours from last year. Kenya largely offers companies a better system than this.

Paying Taxes investigates and compares tax regimes across 189 economies, ranking them according to the relative ease of paying taxes.

According to the report, electronic tax filing and payments were the most common tax reforms undertaken by countries worldwide in the past year, significantly easing the burden of tax administration.

Low-income economies, however, continue to face the biggest reform challenges.