[Photo/house.jumia.co.ke]
The country is ripe for more tax amendments including a tax amnesty to energize and improve Kenya’s tax regime. Amendments to the current tax environment could fork out synergies that can boost the revenue collection regime which is expected to improve to Sh1.4 trillion in the financial year 2016/17.
Modern income tax laws are credited for the smooth enactment of the new Value Added Tax (VAT) law which is said to have been administered in a simplified and streamlined manner hence the need for realigning certain contentious income tax provisions.
Business advisors and accountants, PKF, want the Income Tax Act of 1974 reviewed urgently to realign it to the current business realities.
PKF Kenya proposed that the government offer a six month period of amnesty to taxpayers who have not paid their taxes to come forward and volunteer to pay tax arrears in exchange for a waiver of penalties and interest.
PKF took issue with the re-introduced Capital Gains Tax (CGT) regime calling it a ‘copy and paste version’ of the 1985 suspended law. There is need to review these regulations to reflect the current economic realities and ease the administration of this tax.
Equally, there is need to amend the law to exempt dividends paid out of capital gains from compensating tax since Capital Gains Tax is meant to be a final tax. The government should revise tax provisions that impose a tax on interest paid on both foreign and local loans that have been borrowed by foreign-owned companies.
Known as thin pricing, the advisors said the concept has lost ground to transfer pricing to take care of the ‘mischief’ that was meant to be cured by thin capitalization provisions.
For as long as any interest is paid by a business to generate taxable income, and that interest satisfies the arm’s length requirement under transfer pricing, the interest should be allowed for a tax deduction.
Deemed interest’ which was introduced by the government in 2009 and charged on interest-free loans which also targeted foreign-controlled companies was also put on the spot.
This is because of the fact that when the foreign-controlled entities borrow to invest in Kenya, whereby no interest is charged to the Kenyan entity, is seen as a typical protectionist tool in international trade.