Yatani seeks Sh115b from Kenya’s wealthy
By Dominic Omondi | April 17th 2020
The government will no longer give tax incentives to the rich. This is after it realised that it has only been ‘ballooning’ wealthy people’s profits while ordinary Kenyans go without critical services.
National Treasury is, however, optimistic to ramp up an additional Sh117 billion from wealthy individuals and industries through a modest reversal of tax exemptions.
The areas being targeted include buying of helicopter engine, which had been exempted from tax, yet it has had little meaningful benefits to ordinary citizens, according to Treasury Cabinet Secretary Ukur Yatani.
Sectors that are likely to be hit most by the mass repeal of tax incentives as Treasury moves to shore up its coffers include agriculture, manufacturing, education, health, tourism, finance, social work and energy.
Mr Yatani told The Standard that the government has been giving tax incentives valued at Sh535 billion, which has not translated into remarkable improvement in investment and employment.
“We are trying to avoid a situation where the ordinary person will be affected,” said Yatani, noting that they will instead be going after heavy expenditures such as hiring of helicopters in what is likely to hit politicians, most of who are fond of hobnobbing around the country by air.
“You buy an engine for a plane we charge no taxes. And if you ask how the ordinary mwananchi is going to benefit it is no much,” said Yatani.
However, Treasury has come under fire for taking advantage of the current economic crisis occasioned by the coronavirus pandemic to introduce what analysts say are sweeping tax changes that have little bearing on the ongoing stalemate.
Indeed, the re-introduction of the 14 per cent value-added tax (VAT) on cooking gas might hit the very poor that the government is trying to protect. Following the ban on logging and introduction of anti-adulteration levy, ordinary Kenyans have shifted to cooking gas.
Even those selling land or homes will also have to pay a five per cent capital gains tax, a move that analysts say will discourage investments, with most people opting to sit on their property rather than sell them.
“The net effect will be to provide a tiny stimulus now and a huge dampener on investment and trade right after. Imagine lighting a match just before walking under a waterfall,” said an analyst close to the government’s latest decisions but who did not want to be named.
However, Yatani was bullish that some of the things they are reversing have had no benefit to mwananchi. “So these are things that we are reversing because we realised that the benefits which were intended to be facilitating and passed on to the ordinary people are not done. You just balloon their profits and not going to the citizen.”
On tax holidays enjoyed by those who set up industries outside of Nairobi, Treasury has staggered claims to three years. Normally, they claim up 150 per cent of the taxes.
“That gives us an opportunity for more revenue to stream in rather than all being taken at once,” said Yatani, on Tuesday when tabling a mini-budget in Parliament.
This comes after the taxman released a report which showed that the country loses close to half a trillion shillings annually from tax holidays that have barely spurred investment and jobs.
The foregone revenue of Sh478 billion as at the end of June 2017 has increased almost five-fold, from Sh100 billion in 2012. Yatani, however, puts the figure at Sh535 billion.
The KRA study noted that revenue lost in 2017 represented 5.9 per cent of gross domestic product, significantly above that of Mauritius and South Africa at 1.4 per cent and 3.9 per cent respectively.
Political interests, business lobbies and lack of transparency take the blame for the spike in the costly tax incentives.
The biggest culprit, according to the study, is the manufacturing sector, which accounted for the highest level of capital-related deductions at 24 per cent. This comes at a time when President Uhuru Kenyatta has told Treasury to implement tax measures to cushion Kenyans against the impact of Covid-19.
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