Taxation in Kenya has attracted the interest of William Ruto, the new Kenyan President as he moves to impose higher taxes on Kenya’s affluent and high-income earners.
He revealed his plan during his inaugural speech on the floor of the House where he mentioned that his government will strive to raise taxes from the wealth amassed by the wealthiest Kenyans over getting revenues from workers and traders.
In the past, he had tried to get approval for the introduction of a wealth tax but his efforts were futile as the proposal failed to sail through Parliament for over four years.
The new administration believes that successfully raising taxes on the well-off will enable the government to eliminate dependence on loans to finance the national budget amid the burgeoning public debt.
This kind of tax would be based on a person’s net worth after subtracting their liabilities and would only pertain to the richest citizens.
The president explained that this tax is different from other forms of taxes as people with a substantial net worth would be obligated to pay wealth taxes, even if they are not earning income or selling assets at that moment.
This tax would apply to all properties including real estate, cash, investments, business ownership, and other assets, less any debts, and investors would owe the tax each year based on the market value of the assets.
He explained that the country’s tax system is not aligned with the economic principles of equitable taxation which requires that the tax burden indicates one’s ability to pay.
To achieve this, the government would have to tax wealth, consumption, income, and trade in that order of preference.
Dr. Ruto mentioned instead of the current tax system which over-taxes trade and under-taxes wealth, the government will introduce new tax measures that will impose higher taxes on the wealthy, followed by excise taxes on the consumption of items like beer, cigarettes, and betting before targeting workers’ income tax and lastly traders for corporate and sales taxes.
Part of the President’s promises when he took the oath of office this month was to create economic reliefs for the poor.
This promise however is proving a little hard to fulfill the government of his predecessor Uhuru Kenyatta had acquired a huge debt in the name of borrowing loans to finance infrastructure projects.
His government aims to direct resources to industries that can produce the most jobs, such as farming and small businesses, which will be offered concessional lending through the “Hustler Fund”.
In 2021, to increase revenues, there were discussions about introducing some fiscal changes to the Finance Bill, including the proposal for the wealth tax.
This was followed by an increase in capital gains tax from five% to 15% in the Finance Act 2022 which will take effect from January next year.
The Treasury argued that since this tax only applies to the wealthiest, they are confident that it won’t have any effect on their quality of life.
Taxation in Kenya: Criticism of the Move By President Ruto
However, critics have argued that the introduction of a wealth tax would likely lead to increased tax evasion, and could chase the wealthy away from the country.
It was mentioned that of 38 Organisation for Economic Co-operation and Development (OECD) countries, only three European countries impose a net wealth tax, including Norway, Spain, and Switzerland.
Other countries that enforce it such as France and Italy only impose it on certain assets but not on an individual’s net wealth.
OECD countries that have amassed revenue from net wealth taxes rose only slightly from eight in 1965 to a peak of 12 in 1996 to just five in 2020.
In 2018 when the top tax rate was 30% on all income surpassing Sh564,709 per year, the Treasury sponsored a Draft Income Tax Bill that aspired to levy a higher maximum tax rate of 35% on income of more than Sh9 million per year.
According to the Treasury, the idea was shelved after receiving the views of the public.
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