Suggested ways of tax revenue expansion

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Suggested ways of tax revenue expansion

The approach used in budgeting on an individual level versus a government level are totally inverse of each other. While government first determines what it will spend on, which includes its expenses like salaries, debt repayments and developmental projects then attempts to raise the funds to be spent, individuals first have to earn the money then plan on how to spend it. In practice, most governments’ spending plan often exceed their revenue collections, especially in our continent, Africa.

Taking a closer look at the recent Kenyan government budgets, it is seen that the National Treasury has reduced introduction of new taxes and hiking tax rates while entrusting the Kenya Revenue Authority (KRA) to increase tax compliance of the general public to increase their revenue collection. The taxman has however never achieved their revenue targets and thus government has to get additional funds to run its budget from elsewhere, mainly debt with the likes of the Eurobond.

With a new presumptive tax introduced in 2018 in a bid to expand the tax base, it could only be a matter of time that the newly recruited taxpayers under this category be brought into the mainstream tax in that they would for example be expected to remit both income tax and VAT. With the trend of not viable revenue sources to cater for the budget shortfall, income streams that enjoyed lower income tax at 10% shall likely be subject to higher tax rates just as the recent 8% VAT on petroleum products.

The cabinet minister should consider getting more revenue from the digital economy. Quite a number of countries have considered introduction of tax on digital services businesses with UK’s standing at 2%. With the high internet penetration rates in Kenya and the ever growing e-commerce space, such a tax seems attractive to the government. Implementation and collection however would prove to be a challenge as technological changes outpaces changes in the tax law.

Another sector that should be considered for taxation is inheritance. Introduction of wealth and inheritance tax would often prompt sale and disposal of assets thus liberating idle assets and inject funds into circulation. Another nominee to be considered is consumption tax due to its broad reach as the population have to consume goods and services. These last pairs might be the keys to the Kenya government fiscal deficit but would require bold discussion about them.

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