Treasury targets Sh621b lost through tax waivers

The government has set its sights on converting the Sh621 billion worth of tax waivers into tax revenues through the Finance Bill 2023.

At the centre of the proposal is the removal of tax waivers, aiming to curb the significant amount of revenue foregone due to tax exemptions, as highlighted in the Kenya Revenue Authority’s (KRA) report on tax waivers, reliefs, and incentives.

KRA’s report indicates that a staggering Sh620.5 billion was waived between January 2018 and February 2023, prompting the State to take decisive action and address the issue at its core.

Consequently, a proposal has been put forth to amend the Tax Procedures Act, eliminating the power to grant exemptions.

Tax Procedures Act

“KRA report on tax waivers, reliefs & incentives showed that Kes 620.5 billion had been foregone between January 2018 & February 2023. I propose to amend the Tax Procedures Act & do away with the power to exempt,” said National Treasury Cabinet Secretary Njuguna Ngung’u.

Tax waivers have long been a subject of scrutiny, as they often lead to revenue leakages and pose challenges to achieving fiscal targets.

By removing these waivers, the government aims to create a more equitable tax system and ensure that all eligible entities contribute their fair share to the country’s development.

A case in point is the government’s claim that the NIC-CBA bank merger was exempted from tax costing taxpayers millions in lost revenue.

The proposal to eliminate tax waivers demonstrates a commitment to enhancing revenue mobilisation and closing the existing loopholes that hinder sustainable economic growth.

If implemented, the removal of tax waivers is expected to have a significant impact on revenue generation. The government is battling a huge debt service bill that threatens to disrupt the smooth running of government operations.

Kenya is expected to spend Sh1.6 trillion to pay the debt in the coming financial year out of the Sh3.6 trillion budget. Moreover, it will reduce the country’s reliance on external borrowing and help achieve a more sustainable fiscal position.

However, the proposal to do away with tax waivers will require careful consideration and consultation with relevant stakeholders given that businesses have been struggling due to high inflation and forex challenges.

The government will need to assess the potential impact on various industries and ensure that the changes are implemented in a manner that minimises any adverse effects on economic activities.

The Finance Bill 2023, with its focus on removing tax waivers, marks a significant step towards strengthening Kenya’s revenue collection and fostering a fair and sustainable tax system.

By curbing revenue leakages and enhancing compliance, the government aims to create a solid foundation for economic progress and the realization of its development agenda.

Kenya Revenue Authority in collaboration with National Treasury and Economic Planning Ministry, suspended all tax relief payments starting from February 28, 2023, until further notice.

Tax relief process

The aim was to improve the tax relief process and to allow for an audit and enhancement of the procedures while still complying with the law by assessing and processing the tax reliefs. KRA believes that the enhancement of the tax relief process and procedures will result in the issuance of permissible tax exemptions while ensuring the equitable processing of tax reliefs.

The improvement is part of the government’s strategy to seal revenue leakage and enable the agency to mobilise more taxes towards the country’s economic growth.