Kenya budget 2017: Tax outlook

Kenya's national treasury set an ambitious target, aiming to raise tax revenue by 8.7% to about 1.5 trillion Kenyan shillings in the 2016-2017 financial year. However, the Kenya Revenue Authority fell short of its first half-target by more than 20 billion Kenyan shillings, raising concerns about the government's taxation strategies. As the country prepares to announce a 2.25 trillion shillings budget on March 30th, there are questions about the effectiveness of revenue collection moving forward. Grace Malinge, Associate Director at Ernst & Young, provided insights on the challenges and strategies ahead for Kenya's tax outlook. Malinge highlighted the need for a total overhaul of the Income Tax Act and potential increases in excise taxes due to the expansive budget and higher expenditure. She also mentioned ongoing tax amnesties and the importance of widening the tax base to include individuals and industries that have not been taxed in the past. One of the key recommendations from global institutions like the IMF is to expand the tax base, but with over 45% of Kenyans living below the poverty line, there is a need to ensure that low-income earners benefit from tax initiatives. Malinge pointed out that the capping of interest rates has negatively impacted the economy, freezing credit access for SMEs and industries across various sectors. The inclusion of counties in the budget for 2017-2018 aims to enhance county-owned source revenues and ensure tax predictability. However, there are concerns about inequality in education access among different counties and the need for the government to subsidize education costs to alleviate the burden on parents. Revenue leakage and high government expenditure, particularly the public wage bill, remain challenges that need to be addressed. Regarding the Finance Act of 2014, there are potential conflicts with certain articles of the Kenyan Constitution, indicating the need for alignment and evaluation of existing tax laws. Despite the obstacles and complexities in meeting tax revenue targets, Malinge emphasized the importance of implementing effective taxation strategies, including revising tax laws, addressing economic challenges, and optimizing revenue collection mechanisms to achieve sustainable fiscal growth in Kenya.