Govt to increase Taxes After IMF Deal

  • KRA offices in Nairobi.
    A file image of the reception area at KRA offices in Nairobi.
  • Kenya Revenue Authority (KRA) has unveiled plans to expand its tax base even as pressure mounts on the government over the International Monetary Fund (IMF) loans and conditionality.

    This new development comes barely three months after the taxman introduced new taxes in the face of a stagnating economy due to the impact of the Covid-19 pandemic.

    In its new plan, KRA is looking to implement a number of measures that are highly likely to see the country's tax base expanded.

    These measures include the implementation of post-clearance audits, comprehensive audit of all exemptions, enhanced scanning and intelligence-led verification of cargo at the ports of entry to meet its targets.

    Treasury CS Ukur Yatani (right) poses for a photo at Treasury Headquarters, Nairobi on Thursday, June 11, 2020, ahead of Budget 2020/21 presentation

    "We are implementing a number of revenue enhancement measures as we continue to leverage on technology to enhance efficiency in revenue collection.

    "With enhanced operational efficiency, the Authority is optimistic that the landscape of revenue mobilisation and collection in this country will be completely changed,” read a statement from KRA according to People Daily.

    The move comes after KRA recorded an 11.2 per cent increase in tax with a total of Ksh144 billion collected in March 2021.

    The state has been under pressure from the IMF to increase taxes with suggestions floated that the Value Added Tax (VAT) on all petroleum products might be doubled to reduce its budget deficit.

    IMF noted that the country needed to raise the VAT to 16 per cent from the current eight percent.

    “If needed to meet fiscal objectives, capitalise on lower fuel prices by aligning fuel VAT to the standard rate.

    "Oversupply and volatility in the oil market would be a positive shock for Kenya, easing potential external balance pressures from other sources," advised the IMF.

    The National Treasury committed to increase taxes and reduce its wage bill in order to receive the Ksh257 billion IMF loan that has irked Kenyans.

    "A key pillar of the strategy is to bring the tax-to G.D.P. ratio back to levels achieved in recent years (from 12.9 per cent of GDP in financial year 20/21 to 15.6 per cent in financial years 23/24), so as to generate resources to meet Kenyan's development needs," read a document explaining the IMF deal.

    The loan will be given in phases within three years and reviews will also be conducted to ensure compliance.

    Part of the Ksh255 billion credit facility is supposed to help address the weaknesses affecting state-owned companies (SOEs) in dire need of financial assistance.

    The new taxes will burden Kenyans already grappling with a minimum rate tax of one per cent of the gross turnover among others introduced on January 1, 2021.

    International Monetary Fund Building in Washington DC.
    International Monetary Fund Building in Washington DC.