𝐇𝐢𝐠𝐡 𝐭𝐚𝐱𝐞𝐬 𝐜𝐨𝐮𝐥𝐝 𝐚𝐥𝐬𝐨 𝐝𝐢𝐬𝐜𝐨𝐮𝐫𝐚𝐠𝐞 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬𝐞𝐬, 𝐚𝐧𝐝 𝐭𝐡𝐢𝐬 𝐰𝐢𝐥𝐥 𝐥𝐞𝐚𝐝 𝐭𝐨 𝐫𝐞𝐝𝐮𝐜𝐞𝐝 𝐠𝐨𝐯𝐞𝐫𝐧𝐦𝐞𝐧𝐭 𝐫𝐞𝐯𝐞𝐧𝐮𝐞
𝐁𝐲 𝐀𝐦𝐲 𝐌𝐨𝐲𝐢
Kenya is bracing itself for massive tax evasion following the passing of a new raft of tax measures aimed at raising revenues to finance key projects, tax authorities and experts warn.
The new Finance Bill 2023 in Kenya seeks to further increase government tax revenue by the introduction of taxes including; digital tax, housing levy and increasing value added tax (VAT) on fuel from eight to sixteen per cent.
Members of the Civil Society Organisation in Kenya have in a statement termed the steps by the government to increase taxes as punitive, adding that it could likely escalate tax evasion.
“It is important that the government considers the citizens’ and business owners’ economic situations and recognize that overtaxing could lead to increased tax evasion and consequently less tax collection. Business owners might close down their businesses due to the heavy taxation, leading to more lost revenue by the government.”
Demonstrations have been witnessed in the streets of Nairobi in protest of the implementation of the Finance Bill 2023, an indication of apprehension among Kenyans on the implementation of the Finance Bill.
KRA chairman Anthony Mwaura has said the aggressive revenue mobilization plan is aimed at enhancing revenue collection and redirecting resources to finance priority growth-supporting programmes.
The national treasury projects Kenya’s tax revenue to increase from 16.5 billion dollars to 30 billion dollars in the medium-term budget statement for the period to June 2027.
The government spending is also anticipated to grow by about 50 per cent to 33.4 billion dollars.
According to the Kenya Institute for Public Policy Research and Analysis (KIPPRA) the revenue capacity and compliance levels is determined by the taxpayers attitude towards the government as a result of factors like perceived fairness of the tax structure.
Consequently, an increased public perception of unfairness in the tax structure is projected to lead to an increase in economic crimes like tax evasion.
A study by the National Bureau of Economics indicates that an increase in taxes has been directly linked to an increase in tax evasion schemes and a potential reduction in tax revenues.
According to Amnesty International Kenya executive director Irũngũ Houghton, increasing the tax burden for the wealthy will likely encourage tax evasion.
“Increasing the tax burden for the wealthy will likely encourage tax evasion and drive more capital into those tax havens the rich know so well.”
A report by the Global Alliance for Tax Justice in collaboration with the Tax Justice Network (TJN) projects that the government is expected to lose 62.3 billion Kenya shillings in revenues including 55.5 billion shillings from the shifting of profits by multinational corporations.
The Global Financial Integrity (GFI),a financial watchdog in the United States of America,estimates that Kenya currently looses over ninety billion shillings annually due to tax evasion schemes.
In the financial year 2021/2022,statistics from the Kenya Revenue Authority (KRA) indicate that only 84,428 out of 759,164 companies registered in Kenya paid corporate tax.
The former commisioner general of KRA Githii Mburu has said the revenue body has unearthed an ongoing elaborate tax evasion scheme involving the generation of fictious invoices from ghost traders.
“We profiled 1309 individuals and companies with a tax loss estimated at 259 billion.”
A breakdown of data by the Kenya National Bureau of Statistics(KNBS) indicates that the disparity in value of imports between the KRA and the General Administration of Customs of the People’s Republic of China (GACC) has been gradually growing in disparity between the year 2018 and 2022.The disparity grew from 155.7 billion shillings in the year 2018 to 431.7 billion shillings in the year 2022.
KRA had placed the value of imports from China in the first 10 months of the year 2021 at 377.5 billion shillings.However, GACC reported an export value of 809.4 billion shillings from China to Kenya during the same period.
The variance since 2018 adds up to Sh1.26 trillion, which translates into billions of shilling in tax revenue losses.
An audit by the KRA in the year 2021 revealed that Kenya lost over 200 million dollars through tax evasion by a Kenyan real estate firm named Afrigo Development Co. Ltd linked to the Chinese government.The firm was involved in making fake loans and fictional imports to businesses in Mauritius.
Kenya has been ranked the second highest in economic crimes on the world by the Global Economic Crime and Fraud Survey,2018.
According to Mburu,tax evasion schemes in developing countries like Kenya are a major obstacle in mobilizing domestic resources which are crucial for financing sustainable development.
The loss of tax revenues through evasion reduces a sizeable portion of the government’s budget for public expenditure like health, education and public infrastructure like roads.
This story was produced by Amy Moyi. It was written as part of Wealth of Nations, a media skills development programme run by the Thomson Reuters Foundation. More information at www.wealth-of-nations.org. The content is the sole responsibility of the author and the publisher.