KRA staff help members of the public fill their tax reruns in June 30,2017 (photo/standardmedia.co.ke)
The Kenya Revenue Authority(KRA) is losing an excess of up to Sh33 billion annually attributed to tax exemptions, incentives and breaks awarded to different sector players in the economy.
This is according to the just-released Kenya Economic Update by the World Bank.
According to the update, KRA is capable of increasing corporate income tax revenues up to Sh33.38 billion annually, if all exemptions are eliminated.This estimate reflects a 24 percent rise.“Exemptions represent a significant source of the tax gap to corporate income tax revenues,” the report stated.
“Taking into consideration the fact that there are legitimate socio-economic reasons for the application of differentiated tax rates by sector, the tax gap analysis reveals a still significant Sh26.2 billion shortfall in corporate income tax revenues," reads part of the report.
Details of the report reveal that, the tax breaks and exemptions are saturated in four sub-sectors, which include: financial services, information and communication technology, health and manufacturing.
“These few sub-sectors carry the bulk of tax exemptions accounting for about 88 percent of losses in corporate income tax,” the report stated.
The World Bank goes ahead to recommend that KRA should shift focus on these sectors to the extent that the specific tax exemptions being enjoyed in these subsectors are no longer a priority within the national development agenda.“This can be done through promotion of export-oriented economic sectors by incentives on the cost side, such as accelerated depreciation, rather than providing enterprises with global tax holidays,” the report stated.Despite a 13.3 per cent tax revenue growth during the 2016/17 financial year, Kenya’s tax revenue expanded by less than 14.9 per cent of nominal GDP.