Big companies are fighting Treasury’s new proposals to raise income tax in a bid to grow revenues.
They argued the move would stifle their growth, discourage investments as well as stall the Government’s Big Four agenda.
Treasury plans to make significant changes to the Income Tax Act and, in a new Income Tax Bill, proposes a corporate tax of 35 per cent for firms making an annual revenue of over Sh500 million a year from the current 30 per cent.
Individuals earning Sh750,000 per month (or Sh9 million per year) will also be charged a pay as you earn (PAYE) tax of 35 per cent from the current 30 per cent.
This is as the Government tries to increase tax collections to service growing obligations including repayment of maturing debts.
Business consultancy firm PKF, however, said the move would not result in substantial tax collections and might actually stall President Uhuru Kenyatta’s Big Four agenda.
The Big Four seeks to grow the economy over the next five years by focusing on manufacturing, housing, food security and universal healthcare.
The Bill has been fashioned as an enabler for the plan, with expectations to raise enough tax revenues to meet the Government’s growing budget needs but also attract investments.
Michael Mburugu, tax partner at PKF, said slapping more taxes on big companies and rich individuals might not substantially improve collections by the Kenya Revenue Authority. Instead, the taxman should focus on broadening the tax base.
It is estimated that the vast majority of informal enterprises, which contribute about 34 per cent to the economy, do not pay income taxes.
Mr Mburugu said roping in such enterprises into the taxbracket could substantially grow tax revenue.
“Very few companies make a taxable revenue of above Sh500 million. There are few Kenyans who earn above Sh750,000 a month. Treasury should be thinking about the absolute numbers they will get from these entities and people,” he said.
“It is minimal compared to finding innovative ways of taxinginformal sectors players that do not pay taxes,” said the tax expert during a pre-budget briefing Monday.
The big companies should be given an opportunity to expand their business as opposed to being stifled by being asked to pay more taxes and without a corresponding return in public goods, he added.
“Electricity is still expensive, there are no roads, many firms have to employ private security. You are going to discourage more investments,” said Mburugu.
“The reality is that there is a 34 per cent of the economy that is not being taxed in the informal sector… that is where the focus ought to be and Government will realise real value.”
PKF firm also noted that corruption stands as one of the biggest threats that the Big Four Agenda faces.