Members of parliament are now pushing for reforms in Kenya’s tax system that will make in mandatory for a complete impact assessment on any newly proposed taxes.
The proposal comes after it an estimated 70,000 Kenyans lost their jobs in the past one year, due to what has been attributed to the implementation of the Finance Act, 2023.
This development is now forcing the National Assembly to make a U-turn on some of the tax proposals and how new tax implementation will be undertaken in future.
Despite increased revenue collection measures Kenya Revenue Authority (KRA) missed the quarter-one target of Sh665.9 billion after recording a deficit of Sh79 billion.
Further a report by the Parliamentary Budget Office, has warned that the government will miss tax collection target by Sh300 billion if the current trends are anything to go by.
In recommendations contained in a report on the draft National Tax Policy (NTP) by the National Assembly's Finance Committee, MPs now want reforms in various tax bands ranging from Income Tax, Value Added Tax, Excise Duty, customs and changes in the Miscellaneous Fees & Levies Act.
The Kuria Kimani led committee, is among other recommendations pushing for an efficient funding structure that will ensure settlement of approved tax refunds is done within six months.
In an effort to provide certainty and predictability of the local business environment the committee recommended that local manufactures be exempted from new levies for up to five years
“The committee having considered the proposed National Tax policy and submission from members recommends that levy/charge levied to support and protect the local manufacturing and investment sector remains unchanged for at least five (5) years to allow growth of those sectors,” reads the report.
It continued: “Any imposition of a levy/charge be preceded by a comprehensively undertaken economic impact assessment before approval or implementation.”
Under the income tax band, the MPs want government to set a cap on amount of personal income that can be taxed.
In submissions to the committee by the Institute of Certified Public Accountants, they had raised concern that that the lack of a framework for this has exposed Kenyans to increased taxation.
“Income taxes should all times set at an optimal level to guard against the effect Laffer curve and ensure that it does not erode the disposable income/ purchasing power of salaried employees,” Kuria noted among the recommendations.
Parliament also wants reforms that will provide Multiple VAT rates to allow for an opportunity for an alternative rate as a way to cushion the economy against shocks occasioned by global trends and the adverse effects of price increases of these products.
“Provides that in addition to costs compliance and administration costs as provided for in the draft National Tax Policy, the granting of VAT Exemptions be based on incentivizing investment and cushioning Kenyans from economic shocks,” added the report.
Five months after imposing a 16 percent Value-Added Tax (VAT) on fuel, which caused the price of a litre of petrol to climb by Sh35, the National Assembly is now also recommending a reversal of its decision.