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Experts: What govt needs to do to resuscitate failing economy

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Taxation and economy experts have once again pounded the alarm over the country’s huge public debt saying that the government should freeze all development projects and re-work it systems warning that the country is yet to feel the impact of the ballooning public debt despite the Jubilee Administration having borrowed approximately Ksh3.4 trillion since 2013.

Financial services consultancy firm PKF has also raised eyebrows over the government’s official statistic that the country’s Gross Domestic Product (GDP) grew by 6.3% in 2018 saying that if that were the case, listed firms would not be issuing profit warnings by the day and the business environment would be more favourable to Micro, Small and Medium Enterprises (MSMEs).

In its pre-budget briefing hosted at a Nairobi Hotel on Monday, the consultancy firm called for the establishment of an Independent Public Debt Review and Management Mechanism, a body that will examine the country’s current debt and possible restructuring as well as provide oversight over future borrowings.

“There is insufficient information to assess sovereign risk and risk of control of infrastructure as a result of the high debt ratio,” said David Kabeberi, a taxation expert and partner at PKF consulting Kenya.

Kenyans have already expressed jitters over the government’s intermittent borrowing appetite and the growing public debt which stands at more than 51% of the country’s GDP.

Conversely, PKF has now  advised the government to consider a number of measures to restore the country’s economy to it’s past glories.

Offer a local tax amnesty
Hailing CBK’s move to withdraw the Ksh1,000 note, PKF is now calling on the government to issue an amnesty to Kenyans to allow them introduce the money that is not in circulation into the system.

PKF partner Micheal Mburugu said that Treasury Cabinet Secretary Henry Rotich should consider extending the amnesty offered to tycoons stashing illicit wealth in offshore accounts in 2017 to locals as a measure to stimulate the economy.

“The ongoing income tax amnesty that is due to expire in June 2019 has been very successful. We recommend such an amnesty be at a preferential rate of principal tax providing a win-win situation for the government and the taxpayer,” said Mburugu.

Introduce a 20% corporate tax for a three year stimulus period

With more than 30% of firms listed at the Nairobi Securities Exchange (NSE) projecting more than 30% profits decline for the financial year ended December 2018 and MSMEs decrying a tough operating environment, PKF is proposing a 20% tax for three years to enable companies to get back on track.

{Read: Auctioneers wield ruthlessness as Kenyans struggle in grim economy}

Re-organise the Kenya Revenue Authority

Alive to the fact that KRA has almost become synonymous with shortfalls in revenue collection and tax leakages, PKF is now calling on the government to overhaul tax systems and structures at Times Tower.

“A strong tax authority akin to the Internal Revenue Services (IRS) of the US and Her Majesty Revenue and Customs Services of the UK is necessary to ensure Kenya remains on course in implementing key projects,”

Simplify importation rules and pre-shipment verification for small traders

The financial consultancy firm also wants the government to deal with scenarios where property belonging to small scale traders is destroyed on account of being imported through consolidators.

Tax digital economy

Several businesses are operating in the country without being taxed. PKF says that KRA should consider tapping into the digital space instead of piling more taxes on already overburdened Kenyans.

There are already proposals to tax multinationals such as Netflix, Google and a flurry of cryptocurrency and online Forex firms already earning money from Kenyans.

“The Kenyan tax laws, bilateral agreements as well as multilateral tax treaties need to be enhanced with a view to ensure Kenya does not lose it’s rightful taxes to other tax jurisdictions,”

{See also: Fintech in Kenya propels East Africa’s soaring economy}

Modernise tax laws
Currently, Kenya is operating on an income tax law of 1974 which needs to be overhauled. The recent tax laws enacted by the National Assembly have failed to provide for clear methodologies for taxing e-commerce.

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