Don’t drop the ball amid stable tax regime efforts

Monday, June 10th, 2024 08:23 | By
National Treasury CS Njuguna Ndung’u last June formed a committee to carry out analysis of the stock of pending bills accumulated between 2005 and June 2022. PHOTO/Print.

The National Treasury unveiled the much-awaited National Tax Policy, a welcome move that clearly spells out a more efficient, equitable, and predictable tax environment.

The letter and spirit of the document is designed to support economic growth and align the government’s broader policy objectives with emerging issues and public concerns of the public. It is also meant to address longstanding challenges in Kenya’s tax system.

To ensure tax laws remain relevant and responsive to current economic and social realities, a comprehensive review of these laws is proposed every five years. This aligns Kenya’s tax laws with other government policies and international best practices, thereby ensuring a dynamic and adaptive tax system.

For a long time, the captains of industry have been asking the government to ensure that the tax regime is more predictable, to enhance ease of doing business, and the policy documents speaks to this to a great extent.

This is a welcome change for Kenya’s business community, which have long struggled with the unpredictability of the tax regime.

Too many changes each year are disruptive for companies, making it difficult for them to plan effectively. This unpredictability has often led to unforeseen costs and financial planning challenges, affecting production capabilities and overall business performance.

Manufacturers, especially, have been fervent advocates for this move, as they understand the critical importance of a stable tax environment for business planning and operations. The National Tax Policy’s commitment to stability and predictability is expected to alleviate some of the financial uncertainties that have plagued the sector, thereby boosting investor confidence and encouraging long-term investments.

Unfortunately, while a comprehensive review every five years allows for major overhauls, it does not preclude the government from making necessary minor adjustments.

Regular reviews are essential not only for revenue mobilisation but also for ensuring the predictability, certainty, commercial responsiveness, competitiveness, and stability of Kenya’s tax regime.

Much as the policy emphasizes active stakeholder engagement during the review process, one is tempted to ask what is next after the policy becomes effective? Will the policy become another white elephant, or toothless dog, out to appease donors and Bretton Woods institutions for more funds?

The elephant in the room is that the National Tax Policy does not limit the government from making minor annual changes that are assessed based on their merit and effectiveness before implementation.

While this is meant to ensure that any adjustments to the policy are beneficial and justified, allowing the government to respond to emerging challenges and opportunities, it is yet to be known whether this will not compromise the overall stability of the tax system. That is why taxpayers should take a keen interest to see how the government implements the tax policy effectively, especially given its history of crafting well-intentioned policies and strategies but with a significant disconnect when it comes to actual implementation.

For example, while the tax policy anticipates an environment where tax laws would remain stable for five years, some provisions in the Finance Act, 2023, are already being amended and repealed.

To truly benefit from the  tax policy, the National Assembly and the Treasury must strive for more coherence and alignment of tax proposals with medium-term plans.

As for expanding the tax base targeting SMEs, it is important to note that aligning with broader policy objectives will be critical to realising the full benefits of the sector’s growth, otherwise eyeing the sector blindly might boomerang to the detriment of the economy.

That is why we must not repeat the challenges of the current tax regime and set a foundation for regular reviews and stakeholder engagement.

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