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Kenya Revenue Authority (KRA) will unveil a raft of new taxes next month as it seeks to boost its revenues at a time analysts are saying ad hoc tax announcements are disrupting the market.

Head of tax compliance Nickson Odondi said the agency will announce new taxes in the New Year and put into operation the digital service tax.

This even as tax rebates which were instituted to cushion Kenyans from the shocks of coronavirus disease are expected to be rescinded as from January.

Business consulting firms faulted the taxman over what they termed as inconsistent tax laws based on short-term plans, saying it scares away investors.

They said Kenya’s recent tax reviews especially during the Covid-19 pandemic increased uncertainty and the country risks losing out on foreign direct investments.

Tax changes

According to PwC, a network of professional services firms, Kenya has experienced a lot of significant tax changes in the recent past, adding that recent reduction of taxes due to the pandemic were welcome by investors but they were soon followed by upward revisions.

“Tax reduction of tax rates in April was welcomed by investors, however, some of the recent changes aimed at increasing revenue are inconsistent with Kenya’s economic blueprint,” said PWC Kenya tax policy lead Edna Gitachu.

She said the policy landscape is not consistent with the Big Four agenda and “is sending mixed signals to investors.”

The government, Gitachu added, needs to come up with broad tax policy considerations that will guide the development of taxation to boost investor confidence. “There is a need for an overarching national tax policy,” she said.

For instance, the government had announced a series of tax cuts to shield businesses from the effects of the Covid-19 pandemic. However, KRA recently rescinded the minimum turnover tax from one per cent back to three per cent.

Analysts at the Nairobi-based consulting firm, Andersen Tax said the government’s more recent moves (Finance Act, 2020) to scrap a myriad of tax exemptions, introduce new taxes (minimum tax and DST) and reduce various tax allowances indeed sent mixed signals to investors in various key sectors.

“Whereas there might have been an intention to expand the tax base, we would have expected a gradual shift that is tied to overall long-term policies that have been communicated to the investor community over the years,” they said.

Gitachu who was addressing an online audience of investors said that a predictable tax regime will eventually lead to a rise in tax revenues.

They say Kenya’s tax policies are founded on short-term plans and end up providing a fertile breeding ground for trade in contraband among other economic ills.

Linking the country’s tax policy to its economic blueprint helps companies to make long term investment decisions. This enables them to predict the government’s policy direction.

Attracting Foreign Direct Investment (FDI) is a top priority to help create direct jobs and attract foreign exchange.

With many countries to choose from, foreign investors tend to opt for predictable business landscapes.

Kenya’s FDI dropped by Sh31.3 billion in2019 to Sh100.3 billion, data from the United Nations Conference on Trade and Development(UNCTAD) shows.

The new projects were mainly information technology investments and health sector projects.

Long-term investment

Planning on long-term investment by foreign multinational corporations requires predictability and transparency in tax rules and in how tax authorities administer a country’s tax system.

There is a need to consider and modernise the tax system to ensure they are more transparent and predictable.