Kenya has recorded a high percentage of non-remittance with corporate taxes
Kenya-Corporate tax administration has experienced a downward trend as a large number of companies domiciled in the East African nation have failed to remit the required corporate taxes by law.
This revelation is coming from a recent report by the Kenyan Revenue Authority, KRA that explicitly reports that only 9 companies out of 10 in Kenya paid taxes to the administration from the commencement of the fiscal year till the end of the second quarter.
KRA highlights that the gross responsibility of funding the government through taxation now rests on the shoulder of the very few compliant companies in the administration, reducing the government’s earnings from taxation.
Kenya-Corporate Tax: Actual Data of Defaults and Causes
The worrying data from the revenue agency shows that in actuality, only a paltry sum of 84,428 out of the total 759,164 firms are registered and liable for remitting corporate tax. As of June 2022, this has translated to an 11.12 percent compliance rate.
Supporting data from the study, the KRA further submits that the dwindling figure of compliance indicates that it is either that these companies suffered an operating loss due to inflation and other economic factor or outrightly avoided duty payment.
Other causes of the drop in compliance include the exemption granted to certain companies as captured in the Finance Act passed into law in recent times. Chief of the tax waiver granted by the piece of legislation is the enablement the government has granted for companies to enhance their operations.
Some of the beneficiaries of the recent waivers include Kenya Airways Plc one of the worse hit by the covid-19 lockdown measures. Other beneficiaries include fuel marketers and operators in the power sector.
Recall that the government has also failed to realise more taxes from these firms due to a recent failure to successfully implement a minimum 1 percent tax on corporate sales. Largely, this failure was due to the large share of firms filing ‘Nil’ income tax returns.
The rationale for the government when it proposed the 1 percent minimum tax on corporate sales is to rule out the tendencies of these firms using report losses as a tax avoidance strategy to deny the government resources for developmental purposes.
It is worthy to note that, a High Court ruling was the reason why the proposed tax did not see the light of the day as the court labelled it unconstitutional.
Kenya-Corporate Tax: Further Breakdown of Reduction
Going back to 2019, KRA recorded that only about 33, 426 of 401, 306 registered companies then paid corporate taxes which represented an 8.33 percent compliance rate.
The above translates to several companies that paid taxes in 2022 which is a growth recorded in just 3 years, putting the current figure of compliance at 84,428; a 152.58 percent jump in 3 years.
Kenya-Corporate Tax: Solution to Dwindling Numbers
Even though the number of firms that remit corporate taxes continued to increase over the years, the administration can not record it as a success as the ratio compared to the new taxpayers shows that the number of the compliant company is not commensurate with the new taxpayers added.
Africataxreview.com gathered from tax experts like Philip Muema, a Partner at Andersen Kenya in a recent interview that the government need to intensify efforts in blocking all loopholes and revenue leakages currently prevalent in the system.
The taxman further suggests the adoption of technology that will generate smart information on the accurate deduction from affected firms.
Kenya’s Tax Efforts so Far
- Currently, the KRA adopts an enforcement unit that uses various databases to pursue suspected cheats that adopt the falsification of bank statements, and import records, among other details that enable proper tax deduction.
Car registration details are also being used to identify individuals who are driving high-end vehicles, ensuring they pay taxes for luxury.
Kenya Power meter registrations are helping the tax administration to identify landlords, some of whom have been slapped with huge tax demands.
