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Wednesday, January 27, 2021

Broke Treasury Lines Up Wealth Tax to Raise Much Needed Revenues

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BT Reporterhttp://www.businesstoday.co.ke
editor [at] businesstoday.co.ke

Running low on fumes and backed up against the wall with revenues underperforming at the height of the COVID-19 Pandemic, Treasury is firming up plans to hit the wealthy in a last gap solution to plug deficits.

The plan is reminiscent of similar plans by the Treasury in 2018 that hit a dead end after initially gathering momentum.

In a fresh document dubbed Post Covid-19 Economic Recovery Strategy 2020-2022, Treasury observes that high-income households are among the categories of taxpayers who will now contribute more to the tax basket.

Treasury’s plan has tinges of US President-Elect Joe Biden’s action plan who during his campaign said that his administration will impose more taxes on the wealthy as a means to bolster the world’s largest economy.

“In this regard, the government is committed to the following revenue enhancement measures … expanding the tax base with a focus on revenue streams not yet fully explored such as taxation of high net worth individuals (HNWI), property taxes, e-commerce, informal sector players, professionals, registered companies, and individuals trading online who are currently outside the tax net,” the document reads in part.

How the government plans to enforce this plan is still unclear at this stage.

Options available to the government include introducing a wealth tax for the High Net Worth Individuals (HNWI), who will pay a small share of their net worth to the State.

High income earners could also be hit with higher taxes.

In 2018, the Treasury sponsored a Draft Income Tax Bill that sought to impose a higher maximum tax rate of 35 percent on income of more than Ksh9 million per annum or Ksh750,000 a month.

At the time, the top tax rate was 30 percent on all income exceeding Ksh564,709 per annum or Ksh47,059 a month.

When the plan flopped, Treasury stated that it dropped the plans after collecting the public’s views on the matter.

In March, the government announced interventions aimed at cushioning Kenyans in light of the COVID-19 Pandemic that has cost the taxman billions in would be taxes.

The government announced a reduction in Income Tax from 30% to 25% and a reduction in Corporation Tax from 30% to 25%.

The government has indicated that the income tax rate cut is temporary, with the impending upward revision of the levy likely to include special higher bands to include the wealthy.

The 25 percent top tax rate, for instance, will be in place until January, according to a September 28 presidential directive to the National Treasury.

Wealth tax is mostly synonymous with developed countries. In the UK, the top individual tax rate is 45 percent on annual income above £150,000 (Ksh21.8 million) while French residents pay a similar rate for earnings above €152,260 (Ksh19.7 million).

Americans and American residents, who are taxed on their worldwide income, pay a top tax rate of 37 percent for earnings exceeding $518,401 (Ksh56.7 million) per annum.

See Also>>>> Africa’s Wealthiest Entrepreneurs Set Sights on Kenyan Startups

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