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State told to remove tax exemptions

Friday, June 25th, 2021 00:00 |
Digital tax.

The government has been urged to do away with tax incentives and exemptions if it is to make up for revenue lost to the negative impacts of coronavirus (Covid-19) pandemic.

In its latest report, Health Financing and Taxation for Sustainable Healthcare, the Tax Justice Network Africa (TJNA) wants Kenya to review its tax incentives framework by phasing out profit-based inducements and insure that tax exemptions are subjected to parliamentary process and the cost of tax expenditures published annually.

Key economies

This way, TJNA says in the report the country stands to boost key economies such as the healthcare sector, one of the key sectors worst hit by Covid-19 pandemic.

“This is largely attributable to a weak taxation framework due to illicit financial flows, the granting of frivolous and ineffective tax incentives, an inefficient budgeting system with poor allocation and actual disbursement,” the report released yesterday noted.

The agency argued that tax incentives and double taxation agreements were creating an avenue for leakages of potential tax revenue.

It is estimated that Kenya loses about  $1.1 billion (Sh100 billion) a year from tax incentives and exemptions.

Of these, trade-related tax incentives were at least Sh12 billion in 2007/08 and may have been as high as $566.9 million. That figure is believed to have more than tripped to date.

In 2010/11 for instance, the government spent more than twice the amount on providing tax incentives (using the figure of Sh100 billion) than on the country’s health budget. 

And while the sector’s allocation was increased in 2021/22 budget, the report has urged that at least 15 per cent of the country’s gross domestic product (GDP) be allocated to the sector, if it is to sufficiently prepare for another pandemic.

“African governments including Kenya, need to increase their investment in public health and meet commitments such as the African Union’s (AU) Abuja Declaration of 15 per cent annual budget allocation to health,” adds the report.

It also notes that fair macro-economic fiscal policies including equitable and progressive taxation by tackling harmful tax practices such as tax evasion and avoidance were more prudent.

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