Simplify tax rules, Finance ministry told
What you need to know:
- House budget team says laws are very complex, making it expensive to comply with them
The Parliamentary Budget Committee is mounting pressure on the ministry of Finance to streamline and simplify Kenya’s tax laws.
The committee says tax laws in Kenya remain very complex, making it very expensive and difficult for taxpayers to comply.
“Organisations are thus faced with a big burden to employ expensive tax experts to help them,” the committee says in a report before Parliament, ahead of a review of the tax system in Kenya.
The report says that even though turnover tax attempted to achieve this, it failed and distorted the environment by leaving it to individuals or business names and excluding companies, rental income and consultants.
This market distortion, therefore, creates room for difficulty in implementation and opens fronts for continued evasion, said the committee with a mandate of evaluating tax estimates, economic and budgetary policies and programmes with direct budget outlays.
According to the World Bank’s 2011 Doing Business report, businesses in Kenya have to endure complex taxation procedures, which involve very lengthy tax compliance processes lasting 172 hours per year (compared to 148 and 161 for Rwanda and Uganda respectively).
On average, tax liability claims 49.7 per cent of a company’s profit in Kenya compared to 31.3 per cent (Rwanda), 35.7 per cent (Uganda) and 45.2 per cent (Tanzania).
The 2011 report says Kenya increased the administrative burden of paying taxes by requiring businesses to file quarterly payroll taxes.
This is despite spirited reforms by the Government in the recent past to ease the cost of doing business in the country by removing barriers to investment.
The US Government’s 2011 Investment Climate Statement for Kenya says that aside from the complexity of their tax system, many Kenyans complain taxes are too high.
“Consequently, tax evasion is increasing. Kenya is now witnessing growing numbers of unregistered or informal businesses known in local parlance as “jua kali,” says the March 2011 report.
This comes at a time Treasury is in the process of overhauling the whole ACT in an effort to correct the existing challenges that are denying the government revenue.
