Zachary Ochuodho @zachuodho

The proposed introduction of the minimum tax of 1 per cent of the gross turnover for companies that continue to declare return losses may not serve its purpose, a think-tank top official has said  

Kwame Owino, the Institute of Economic Affairs (IEA-Kenya), managing director, said the realisation of the 1 per cent minimum tax will not be possible because it is poorly designed.

“The new tax system is intended to enhance tax fairness, promote equity and also facilitate the raising of additional revenue by targeting a portion of the gross turnover of businesses since the loss-making position does not attract corporation income tax,” he added.

Owino explained that although a good tax system, it minimises the administrative burden on businesses and individuals, especially those who are willing to comply voluntarily, it also requires efficiency on the part of the various tax authorities to ensure that the cost of tax collection, cash and otherwise, does not exceed the likely benefits.

Speaking yesterday during a post-2020/21 budget forum, Owino said the tax rules require consultation on policy and administration which must be kept under review regularly to adapt them to the constantly changing business environment.

Programme Officer at IEA Raphael Muya, said the new tax system is intended to enhance tax fairness, promote equity and also facilitate the raising of additional revenue by targeting a portion of gross turnover of businesses since the loss-making position do not attract corporation income tax.

According to Muya the projected revenue of Sh1.8 trillion by the National Treasury for the 2020/21 may not be realised mainly due to the poor state of the economy.

“The government would have reduced its spending as well as increases its revenue collection in order to meet its budget for the year,” he said.

Service tax

Muya said although the proposed digital service tax of 1.5 per cent of the gross transaction value is welcome it shall be payable by persons who derive income from provision of services through the digital market place.

Muya said Kenya Revenue Authority (KRA) needs a policy on how the money would be collected and who would be responsible for its collection otherwise it wouldn’t generate much. 

He said although many companies such as Kenya Airways, Mumias and Uchumi have continued to declare losses every year, the Act will ensure that everyone is roped and told to pay to declare posting losses.

John Mutua,  Programmes Coordinator said the digital service tax will occasion an expansion of the tax base and facilitate the enhancement of revenue yield but a good policy about it needs to be in place. 

“This is because businesses will pay the higher of either minimum tax or instalment tax,” he added.  He said it will help to generate revenue for the government. 

This tax targets non-resident without a permanent establishment in Kenya. 

This is because for both resident and non-resident persons with a permanent establishment in Kenya, this tax shall be offset from the tax payable for the year of income.