NAIROBI, Kenya: June 20 (Xinhua) — The Kenya Revenue Authority (KRA) is banking on steady economic growth in order to achieve its revenue target of 10.35 billion U.S. dollars for the 2012/13 financial year.
KRA Commissioner General John Njiraini told journalists in Nairobi that the country will achieve its goal despite missing the target for the current financial year by 297 million dollars.
“The economic growth rate coupled with tax reforms will help KRA achieve its revenue target of 10.35 billion dollars for the 2012/13 financial year,” Njiraini said during the Institute of Certified Public Accountants of Kenya (ICPAK) Post Budget Review Seminar.
According to the ministry of finance, economic growth in 2012 is estimated to be 5.2 percent up from 4.4 percent in 2011. He noted that the expected enactment of the Value Added Tax (VAT) 2012 bill this year will raise more tax revenues.
“We believe that a more simplified VAT regime will increase revenues and will help KRA meet its target,” he said.
The KRA head said that the VAT bill will simplify the tax by reducing number of products that are zero rated from 400 to a selected few. “It will also have minimal exceptions to the general rate of 16 percent,” he said.
“The bill also proposes that export goods will be exempted from paying the tax while rest of goods consumed in Kenya including basic commodities will be subject to the taxation,” Njiraini said.
He said that in order to cushion the low income earners the government may introduce a subsidy scheme that will target poor consumers when they purchase some of the basic commodities that will be affected by a tax hike. KRA said that the current VAT regime amounts to tax subsidies on consumption.
“While they could be justified in limited cases, public interest will not be save guarded if they are maintained as the rich and poor pay same rate of tax,” the commissioner general said.
“Following the reforms, revenue from VAT will constitute 27 percent of ordinary tax revenue or 2.8 billion dollars up from an estimated 2.1 billion dollars for the current financial year,” he noted.
The tax authorities are confident that the reforms will also eliminate VAT refund delays whose current portfolio stands at 297 million dollars.
“If zero rating on VAT is eliminated only those in the export sector will be eligible and thereby reduced the problem associated with tax refunds,” Njiraini added. He said that the KRA will also begin enforcement of taxation on rental income at prevailing rates for those who have been evading it.
“Details to facilitate those who want to make voluntary disclosures will soon be publicized,” the commissioner general said. He noted that a survey conducted in 2011 revealed significant non-compliance of tax payment in the real estate sector. As a result, KRA will also apply use of technology in order to increase compliance rate.
“The current use of manual records makes cross checking difficult in order to prevent under reporting of taxes,” he noted.
Njiraini said the real estate sector has attracted significant investment due to huge returns.
“Property developers have in the past sought to shield their profits they generate by citing the suspension of capital gains tax which was effected in 1985,” he said. He added that basic rules of fairness dictates that taxes have to be targeted in sectors which are generating revenue such as the real estate sector.
According to KRA rules published in 2010 capital gains in the development of real estate are taxable. The KRA has also established other tax measures aimed at expanding the tax base through the finance bill 2012 which amends the law to make directors of real firms liable in their personal capacity, if they use corporate entities to evade tax obligations.
“We have noted these schemes which make it difficult for authorities to track developers who move from one property to other using different companies,” he said. (Xinhua)
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