Unpredictable tax regime hurting economy - experts

Tax payments

Stakeholders say the new taxes introduced by the government may not have an actual impact on the generation of more revenue.

Photo credit: Courtesy

What you need to know:

  • Players have criticised the State for coming up with taxes whose formulation is based on the shallow vision of merely netting in more revenue.
  • They have argued that the tax will push product costs up, risking a cost-led inflation in the country, besides locking out potential foreign investors.

The government’s frequent introduction of new taxes and failure to develop a proper tax policy framework is hurting the economy more and risks raising inflation and driving away investors to neighbouring countries.

This is according to players from various sectors of the economy, who have criticised the state for coming up with taxes whose formulation is based on the shallow vision of merely netting in more revenue.

The players from the agriculture, manufacturing, finance and other economic sectors have faulted several steps taken by the government to effect the raising of taxes for businesses and citizens, including the reversal of Covid-19 tax relief measures that had been placed last year.

They say the new taxes introduced by the government may not have an actual impact on the generation of more revenue since they risk sucking life out of many businesses which will end up closing down, as well as reduce disposable income for households.

“We are assuming that businesses have picked up, which is not the case. So that reversal will have an impact on disposable income. It may still negatively affect the growth of taxation,” said Mr Elias Wakhisi, manager, Public Policy and Research at the Institute of Certified Public Accountants of Kenya.

He spoke during a session by the Institute of Economic Affairs (IEA) for players in the economic sector to present views on the Budget Policy Statement released by the National Treasury this week.

Private investment

The players said policy incoherence on revenue generation is ending up affecting private investment in the country by resulting in multiple taxation for businesses which are already enduring harsh times.

“We don’t have a predictable policy environment because things keep changing. This is a big deterrence to the private sector and there is need for continuous lobbying,” said Dr Timothy Njagi from Egerton University.

Among the newly introduced taxes businesses are opposed to is the Minimum Tax, which started being implemented this year, requiring all firms with a turnover of at least Sh50 million to pay one per cent of the annual gross turnover as the Minimum Tax.

Players have argued that the tax will push product costs up, risking a cost-led inflation in the country, besides locking out potential foreign investors.

“It’s an additional, unnecessary double taxation. Raw margin sectors will be forced in one way or another to increase their margins so that they can be able to take care of the Minimum Tax. The margins that have been placed will be pushed to the consumers,” said Mr Job Wanjohi, from the Kenya Association of Manufacturers.

Institute of Economic Affairs (IEA) chief executive Kwame Owino says Kenya lacks an appropriate tax policy, despite the fact that the public debt continues to eat more into the tax revenues.

Mr Owino also faulted Parliament for failing to block some of the badly structured tax laws that end up hurting the economy.

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