The desire by the Kenya Kwanza administration to increase the tax to Gross Domestic Product (GDP) ratio will see the administration squeeze Kenyans further to achieve the dream.
Treasury Cabinet Secretary Prof. Njuguna Ndung’u, in the budget statement read in Parliament on Thursday, proposes that through the implementation of the Medium-Term Revenue Strategy (MTRS), Treasury will be able to expand the tax base to 20 percent of GDP over the medium term, increasing it from the current 15 percent, in the 2024/25 financial year.
According to Deloitte, this will see Kenyans squeezed for an extra Ksh.1trillion tax revenue, between now and 2027.
Deloitte Partner Fred Omondi said: “They are going to be coming back to the same same taxpayers to raise that money and 5 percent increment is not a small amount, its over a trillion shillings in extra taxes…so you can project what you’re going to be required to pay over the next two or three years if the government wants to collect an extra trillion shillings from the existing taxpayers.”
Although Deloitte admits there could be scope for the government to achieve its intended target for taxes as a percentage of GDP, they remain bearish on the government’s ability to find innovative ways of widening the tax bracket, and with the revenue authority failing to meet its targets, the easy to target sectors remain exposed to additional tax measures.
“What is currently happening is when we increase tax rates and eliminate incentives and all these so called expenditures, what we are doing is we are taking more from existing taxpayers, so if you’re paying taxes of 20/30 percent now, you are going to be paying 40 percent, if you increase the levy and all that…so we’re taking more from you and diminishing your net or disposable income. The challenge we have is we probably don’t want to do the hard work of targeting the hard to tax sector,” added Mr. Omondi.
Kenya currently trails Rwanda in the East Africa economic bloc, with Rwanda’s tax to GDP rate standing at 17 percent.
However, Kenya at 15 percent is still ahead of Uganda and Tanzania at 12.2 % and 11.8 percent respectively.
Should Kenya hit the 20 percent tax rate to GDP, it will join South Africa and Morocco with some if the highest taxes in the continent.
According to data from Deloitte, Morocco tax rates stand at 27.1 percent of the GDP, with South Africa standing at 27 percent.