Wealth tax could give Treasury at least Sh100 billion – report

Taxing Kenya’s high High Networth Individual’s (HNWI) wealth could see the government collect nearly $781 million (Sh100.75 billion), which is almost a third of the amount the National Treasury sought to raise in the rejected Finance Bill 2024.

A new report by independent lobby group National Taxpayers Association (NTA), dubbed ‘Taxing Wealth in Kenya’ is proposing the division of 7,800 high net worth individuals as listed in the latest Africa Wealth Report in the country into three categories. In the first band, the association proposes a 1.5 per cent annual wealth tax on individuals worth $1 to $3 million (Sh140 million to Sh400 million).

The country has 5,700 individuals of this wealth status hence a potential total tax of $171 million (Sh22 billion).

It proposes a three per cent wealth tax on those worth $3 million to $100 million, which could see the government gain close to $450 million (Sh58 billion), easing the pressure on the poor who the report says are overly taxed.

The lobby that advocates for a fair tax system wants those with over $100 million to pay five per cent of their wealth annually.

This could see the Kenya Revenue Authority (KRA) collecting $160 million (Sh20.6 billion) from 16 super-wealthy individuals in the country.

According to NTA, the government must include a wide range of assets in the tax base, building on existing frameworks for property (real and intellectual) and financial asset taxation.

It also proposes comprehensive valuation mechanisms, drawing on international best practices and enhancing existing systems for real estate and financial assets.

It recommends the adoption of a gradual approach, starting with enhanced data collection and HNWI identification, progressing to a full wealth tax regime over several phases.

To come up with the tax, the lobby also recommends the development of robust legislation that aligns with constitutional principles and existing tax laws, ensuring clear definitions of taxable wealth and enforcement mechanisms.

“Design the wealth tax to focus exclusively on HNWIs, setting a high threshold to exempt the majority of Kenyans especially household and individual savings on which tax has previously been paid,’’ the report reads in part.

The National Tax Policy (Sessional Paper No. 02 of 2023) is anchored in the 2010 Constitution of Kenya, particularly Article 201 which outlines the principles of public finance. It emphasizes the need for a tax system that ensures ‘equity and fairness’ by treating ‘equally all taxpayers placed in similar circumstances (horizontal equity) and treat differently those placed under different circumstances.

The lobby urges the government to ride on the global momentum towards wealth taxation, including in developing countries like Argentina, Burundi, Colombia, and Uruguay. It further says that wealth taxation can play a crucial role in poverty alleviation efforts and help in sealing the big gap between the rich and poor.

Data from the World Inequality Database for Kenya (2022) shows significant wealth concentration in Kenya, with the top 10 per cent owning 61.9 per cent of net personal wealth.

The study blames the current tax system for being biased against the poor, with those, for instance, earning a monthly salary paying almost 40 per cent to the government while the rich pay a minimal fraction of their wealth.

The Association wants the state to keenly look at the Capital Gains Tax (CGT), which it says occupies a unique position in the realm of wealth taxation, straddling the line between income tax and wealth tax.

“While technically an income tax, CGT fundamentally targets the appreciation of wealth over time, making it a crucial consideration in discussions of how to tax accumulated wealth,’’ the report says.

The lobby says that the treatment of capital gains remains a crucial consideration in discussions of wealth taxation.