Make tax policy predictable, fair

It is encouraging that the National Treasury is in the market for suggestions on how to generate a tax policy that will expand Kenya’s revenue base while also enhancing fairness and equity in the tax system. This is a move in the right direction. Indeed, Kenyans ought to do their civil duty by stamping their authority on the document by helping Treasury to define policies that will drive economic growth progressively.

In the past, Kenyans have complained that they felt most of their taxes did not go into delivery of quality services, and that the existing tax regime is not fair. Other concerns have been that while majority of people at the bottom of the economic pyramid have no way of avoiding taxation, their wealthier and more educated counterparts have ways of avoiding paying taxes.

These are concerns that must be incorporated into any policy document Treasury develops to ensure that it informs personal tax obligations as well as business decisions. Ultimately, a level playing field will give all Kenyans an opportunity to expand the tax base, boost fairness and equity in the tax system and embrace international best practice in tax administration.

The conversation must help create certainty and predictability in Kenya’s tax regime and also enhance tax compliance. As present, taxes are reviewed through the Finance Act in an annual ritual that leads to unpredictability and inefficiency in tax administration. For instance, the proposal to have tax policies reviewed every five years is appropriate as it will make Kenya more attractive to investors.Based on tax proposals included in the Finance Bill 2021, for example, it was clear that the government’s plan was to increase tax revenues in the 2021/ 2022 financial year.

Indeed, Kenya Revenue Authority (KRA) reported an impressive revenue collection of Sh2.031 trillion in 2021/2022, but concerns abound. For instance, in that financial year, market distortions, friction and litigation from a private sector that acutely felt the pain of constant changes in the tax regime increased. This was not good for Kenya’s business environment.

Experts say some of these strategies could be chasing away investors, even as some local players opt out of the real economy, making it more difficult to tax them. To ensure that more Kenyans pay taxes fairly and equitably, the policy document must find a way to bring on board the largely untaxed informal sector. Above all, a good tax policy should moderate between huge expenditure and poor tax compliance.

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