Accountants are now proposing maximum tax bands on personal incomes as a way to prevent over taxation.
In submission to National Assembly's Finance and planning by the Institute of Certified Public Accountants noted that the lack of a framework for this has exposed Kenyans to increased taxation.
The country has been operating without a tax policy, which has seen employees and business, subjected to new taxes every other year.
However, in the new proposal MPs are pushing for the draft policy, which aims at expanding the tax base to enhance fairness and equity in tax system as well as embrace international best practice in tax administration.
The House committee is currently receiving views from the public.
ICPAK noted that Kenya’s tax system suffers numerous challenges leading to underperformance in revenue collection.
The accountants’ body said that the National Treasury, ordinary revenue as a percentage of GDP has been declining over the last ten years from a high of 18.1 percept in FY 2013/14 to 14.1 percept of GDP in FY 2022/23.
“This trend highlights the underlying issues affecting the tax system," said ICPAK.
It said there is need to assess the impact of taxation on household’s disposable income, savings and investment since focusing on one segment of the economy in taxation may affect capital accumulation and wealth creation.
ICPAK said over taxation might force Individuals and firms to invest elsewhere leading to capital flight.
Other proposals the accounting body is floating include the development of a framework that will enable a single identifier for identification of natural and legal persons from birth to death.
This will enable the taxman to automatically include individuals in the tax bracket when they attain the age of 18 years ad expand the tax base.
ICPAK argued that Kenya has continued to rely on a small pool of taxpayers exposing a few individuals to increased taxation.
“Out of a population of about 47 million people, about 8 percent of the population is contributing to income tax," said ICPAK.
It argues that a single identifier apart from easing tracking will also enable long term strategic policy decisions based on expected population and economic activity.
The committee chairman Kimani Kuria acknowledged that the absence of a national tax policy, has left Kenya's legislation on tax administration in the hands of those in authority to determine what they think is right, which he said is very unsafe for the business environment.
“We are hoping that this few days of rigorous engagement with the stakeholders will come up with a document that will guide our tax policy so that even as we engage in the process, the next Finance Bill will be based on a policy that has been agreed,” said Kuria.
The National Treasury had in August revealed that plans were at an advanced stage to finalise new tax policy guidelines to streamline Kenya's taxation regime and make it more predictable.
In an effort to address unpredictability of tax rates, the policy formulated by the National Treasury, recommends a comprehensive review of tax laws to be done after every five years.
On growing tax expenditure, the policy recommends the development of framework for identification and granting of tax Incentives.
To address challenges relating to international taxation and treaties, the policy provides guiding principles on negotiation of bilateral, multilateral, regional and International tax agreements.