Kenya losing billions to tax exemptions

Kenya loses up to Sh40 billion annually in tax exemption and zero rating of import goods.

This creates a shortfall in revenue collection, with the net impact being government spending on development projects across the country.

According to Mr Ragnar Gudmundsson, International Monetary Fund resident representative, Kenya should re-evaluate its policies on exemption.

“Although some exemptions are probably welcome there are significant gains to be made by the economy, if the country could do away with these policies,” Mr Gudmundsson told a news conference in Nairobi on Thursday.

Currently the Kenya Revenue Authority, the official taxman, exempts goods proved to be benefiting the population and linked with efforts towards reducing poverty and improving on health and education situations.

The argument by the IMF is that at the end of the day, exemptions are quite substantial and can be critical in boosting the gross domestic product.

The institution also advises that Value Added Tax (VAT) be made less complicated by reducing thresholds, which keep small taxpayers out of the bracket.

Of significance to the call by the IMF on policy review, Kenya’s revenue collection in the first-half of the 2010/2011 fiscal year, suffered a bout from extensions.

VAT collection was hit by a new policy for the ministry of Roads, which required construction companies to withhold only 50 per cent tax as opposed to the previous 100 per cent.

Mr Gudmundsson was speaking during a briefing on the Revenue Mobilisation in Sub Saharan Africa conference scheduled for Nairobi next week.

The conference beginning on Monday has attracted participants from 36 African countries and will among other things, look out for ways of increasing tax revenues in African countries.

“We picked on Kenya as the venue for the conference because it has useful lessons on revenue collection and a more dynamic private sector in the region,” he explained.