Very well penned article, Well eloborated and enjoyable to read .
Speaking truth with power:
Making truth powerful;
Making power truthful
Making truth powerful;
Making power truthful
Following the debt binge over the last couple of years, Kenya is set to spend KSh. 1.36 trillion towards debt repayment annually starting FY2022/23 going forward[1]. In light of this, debt repayments will consume approximately 65% of taxes. This signals that the country has a narrower fiscal space for balancing the budget and achieving equitable and sustainable economic development.
Nonetheless, it is notable that the Kenya government gives away or foregoes a lot of revenues that appears not to square out with its fiscal challenges. For instance, a 2021 Tax Expenditure Report published by the National Treasury highlights that Kenya has foregone on average Ksh383.9 billion worth of revenues between 2017 and 2020 to tax incentives. These revenue losses compare to equitable share revenues allocated to all counties in FY2020/21[2]. Also, the report estimates that the country loses up to 6% of GDP through generous tax incentives. A 2017 publication by the IMF set the cost of tax incentives at KES 478 billion, a figure that accounts for 5.3% of the country’s GDP.
What then does this mean for fiscal justice in Kenya? At what cost is the government dishing out tax incentives for individuals and corporates established in Kenya? Is there room for better management and administration incentives/expenditures to ensure the economy reaps the most? Are tax expenditures as efficient as argued by the government?
World over, governments leverage tax incentives as a fiscal policy tool targeting to spur economic development by attracting investments. Tax incentives are preferential tax treatments accorded to specific segments of taxpayers. In Kenya, tax expenditures manifest in the form of tax deductions, credits, tax exemptions, deferrals, and tax rates designed to benefit specific economic activities or taxpayer groups. Such expenditures are considered as a basis for financial support from the government to both individuals and corporates established in the country.
The government argues that existing tax incentives have positively impacted Kenya’s outlook as a favorable investment destination in East Africa and the larger Sub-Saharan Africa region. However, pundits have argued that the net effect of tax incentives/expenditures in the country is negative, with the revenues forgone far outweighing the volume and value of investments resulting from the said preferential tax treatments. Further, tax incentives are argued to be shrewd in secrecy and tend to receive less public scrutiny.
The frameworks that dictate the criteria for design and determination of beneficiaries of tax incentives are neither open nor inclusive as demanded by law and prudent public finance management. It remains unclear to what extent these preferential tax treatments have contributed to spurring investments and creating employment in the country. With limited transparency, some have argued that the existing tax incentives in Kenya benefit particular interest groups and advantaged firms, especially Multinational Corporations (MNCs).
As such, the utility and effectiveness of the existing tax incentives offered under the current tax regime have been a subject of debate, particularly considering that the foregone revenues would be useful in bridging the widening budget deficits and dealing with the ensuing public debt problem in the country.
The questions surrounding the utility of existing tax incentives in Kenya demand that relevant stakeholders revise the architecture of formulating tax incentives in the country to promote more transparency and accountability. This demands goodwill of various stakeholders. Policymakers need to enact suitable guidelines that inform how tax incentives are structured and the criteria for qualifying for the said incentives.
Relevant government agencies, particularly the Kenya Revenue Authority and the National Treasury, need to promote transparency and enhance multiagency cooperation. This can be demonstrated by adherence to provisions of the constitution and associated laws, encouraging inclusion and multi-stakeholder engagement in applying tax incentives, and maintaining openness with regards to application of tax incentives in the country by easing accessibility to data.
Currently, the utility of existing tax incentives in Kenya remains unclear, particularly with regards to attracting investments and creating employment opportunities in the country. Coming at a time when the tax regime in the country has been criticized for being punitive to businesses and citizens with increased taxation, tax incentives need to be streamlined to clearly demonstrate their adequacy, usefulness and overall efficiency to the economy.
A move towards positive reforms demands proper engagement and coordination by government through the National Treasury, KRA, Parliament, Auditor General, and the Office of the Controller of Budget, Civil Society, Private Sector, Researchers/Experts, and Media.
A good place to begin is rigorous analysis of the country’s framework of tax expenditures driven by government data from KRA, the National Treasury and the National Bureau of Statistics. Such analysis can shed light on sectors of the economy where incentives/expenditures are incurred, segments of the population (in terms of income levels) that benefit most, the balance of costs and benefits for local and international businesses among other pertinent considerations. That way, it can be possible to tell for sure whether the revenues forgone by KRA/Treasury are warranted when compared with the benefits accrued.
Civil society, academia and media can also play a role in conducting complementary analysis and providing supplementary information generated from monitoring and reporting on the economy.
[1] https://www.businessdailyafrica.com/bd/economy/debt-payments-surpass-state-running-expenses-3762312
[2] https://www.treasury.go.ke/wp-content/uploads/2021/09/2021-Tax-Expenditure-Report.pdf
Following the debt binge over the last couple of years, Kenya is set to spend KSh. 1.36 trillion towards debt repayment annually starting FY2022/23 going forward[1]. In light of this, debt repayments will consume approximately 65% of taxes. This signals that the country has a narrower fiscal space for balancing the budget and achieving equitable and sustainable economic development.
Nonetheless, it is notable that the Kenya government gives away or foregoes a lot of revenues that appears not to square out with its fiscal challenges. For instance, a 2021 Tax Expenditure Report published by the National Treasury highlights that Kenya has foregone on average Ksh383.9 billion worth of revenues between 2017 and 2020 to tax incentives. These revenue losses compare to equitable share revenues allocated to all counties in FY2020/21[2]. Also, the report estimates that the country loses up to 6% of GDP through generous tax incentives. A 2017 publication by the IMF set the cost of tax incentives at KES 478 billion, a figure that accounts for 5.3% of the country’s GDP.
What then does this mean for fiscal justice in Kenya? At what cost is the government dishing out tax incentives for individuals and corporates established in Kenya? Is there room for better management and administration incentives/expenditures to ensure the economy reaps the most? Are tax expenditures as efficient as argued by the government?
World over, governments leverage tax incentives as a fiscal policy tool targeting to spur economic development by attracting investments. Tax incentives are preferential tax treatments accorded to specific segments of taxpayers. In Kenya, tax expenditures manifest in the form of tax deductions, credits, tax exemptions, deferrals, and tax rates designed to benefit specific economic activities or taxpayer groups. Such expenditures are considered as a basis for financial support from the government to both individuals and corporates established in the country.
The government argues that existing tax incentives have positively impacted Kenya’s outlook as a favorable investment destination in East Africa and the larger Sub-Saharan Africa region. However, pundits have argued that the net effect of tax incentives/expenditures in the country is negative, with the revenues forgone far outweighing the volume and value of investments resulting from the said preferential tax treatments. Further, tax incentives are argued to be shrewd in secrecy and tend to receive less public scrutiny.
The frameworks that dictate the criteria for design and determination of beneficiaries of tax incentives are neither open nor inclusive as demanded by law and prudent public finance management. It remains unclear to what extent these preferential tax treatments have contributed to spurring investments and creating employment in the country. With limited transparency, some have argued that the existing tax incentives in Kenya benefit particular interest groups and advantaged firms, especially Multinational Corporations (MNCs).
As such, the utility and effectiveness of the existing tax incentives offered under the current tax regime have been a subject of debate, particularly considering that the foregone revenues would be useful in bridging the widening budget deficits and dealing with the ensuing public debt problem in the country.
The questions surrounding the utility of existing tax incentives in Kenya demand that relevant stakeholders revise the architecture of formulating tax incentives in the country to promote more transparency and accountability. This demands goodwill of various stakeholders. Policymakers need to enact suitable guidelines that inform how tax incentives are structured and the criteria for qualifying for the said incentives.
Relevant government agencies, particularly the Kenya Revenue Authority and the National Treasury, need to promote transparency and enhance multiagency cooperation. This can be demonstrated by adherence to provisions of the constitution and associated laws, encouraging inclusion and multi-stakeholder engagement in applying tax incentives, and maintaining openness with regards to application of tax incentives in the country by easing accessibility to data.
Currently, the utility of existing tax incentives in Kenya remains unclear, particularly with regards to attracting investments and creating employment opportunities in the country. Coming at a time when the tax regime in the country has been criticized for being punitive to businesses and citizens with increased taxation, tax incentives need to be streamlined to clearly demonstrate their adequacy, usefulness and overall efficiency to the economy.
A move towards positive reforms demands proper engagement and coordination by government through the National Treasury, KRA, Parliament, Auditor General, and the Office of the Controller of Budget, Civil Society, Private Sector, Researchers/Experts, and Media.
A good place to begin is rigorous analysis of the country’s framework of tax expenditures driven by government data from KRA, the National Treasury and the National Bureau of Statistics. Such analysis can shed light on sectors of the economy where incentives/expenditures are incurred, segments of the population (in terms of income levels) that benefit most, the balance of costs and benefits for local and international businesses among other pertinent considerations. That way, it can be possible to tell for sure whether the revenues forgone by KRA/Treasury are warranted when compared with the benefits accrued.
Civil society, academia and media can also play a role in conducting complementary analysis and providing supplementary information generated from monitoring and reporting on the economy.
[1] https://www.businessdailyafrica.com/bd/economy/debt-payments-surpass-state-running-expenses-3762312
[2] https://www.treasury.go.ke/wp-content/uploads/2021/09/2021-Tax-Expenditure-Report.pdf
Very well penned article, Well eloborated and enjoyable to read .
This is a well written article. It speaks to the issue of tax expenditure with simplicity, clarity and precision which is key in creating awareness and enlightening the public on such critical issues.
There is indeed a need to review the framework in regards to how the terms of the tax expenditures are designed, who the beneficiaries are and above all the terms of the underlying agreements ought to be readily available and accessible to the public and interested oversight bodies not only to enhance transparency but also to give room for scrutiny on the sustainability of the tax expenditures. The relevant authorities need to make data on the tax expenditures not only readily available and accessible but also in disaggregated form to help elucidate and decode underlying trends and patterns in order to create a clearer picture of the situation surrounding tax expenditures in the country.
This is particularly necessary because with the current state of the Kenyan economy, domestic resource mobilization is very critical since the amounts of revenue forgone as a result of the tax expenditures is quite a number based on the currently available data.
A poignant piece. We need to carefully understand how we move forward given the debt scenario we're currently in...it's impact can impair the economic gains made in the Kibaki era,ballooning debt is a burdern to the present and fututure generations.
Very informative and comprehensive article. I have learned a lot within a short period of time.
An insightful and good read.
Tax is a certainty!
In a letter to a French physicist and member of the American Philosophical Society, Jean-Baptiste Le Roy, as far back as 1789. Benjamin Franklin, one of the founding fathers of the United States wrote; “Our new Constitution is now established, and has an appearance that promises permanency; but in this world, nothing can be said to be certain, except death and taxes.
No country can do without taxes but efficient management of it is to ensure that, social security – infrastructure and social needs for public benefits should not be compromised. Advocacy for an efficient tax regime through blocking leakages and wastes must be sustained.
In this present age, the thrust of any tax system should be automation, modenisation and use of technology to improve revenue, reduce human interface and promote transparency.
It is not enough for investors, including foreigners, to be more interested in transparency, consistency and fairness as they pay taxes everywhere in the world. But to demand a competitive and transparent tax regime rather than kicking against payment entirely. Because, undefined and unclarified grounds hurts business environment much more than clearly tax laws.
An exclusive piece that needs to be read by todays youth to understand more on tax incentives. Great write up!!
A very informative piece. It creates awareness to the people and hopefully it will be one of the topics they use to elect the next government. Thank you for being thorough with the topic. Looking forward to more pieces from you.
Quite intriguing. There's also need for an elaborate policy guideline on who receives incentives and under what circumstances should be offered
A good read. Many Articles on the viability of tax incentives fail to give recommendations on what should be done.The suggestion in this article are a good springboard towards a good tax regime. Brilliant.
The truth in this ! Well put together!
Wonderful Article. Very insightful
Great read noting thst the efficeiency of a government in taxation increases political trust
Well articulated and insightful piece.
Good thoughts and insights there Lurit.
To note, tax incentives if well thought and implemented could spur economic growth especially just coming from the pandemic.
Well said
This article on the utility of tax incentives illustrates the need for transparency and accountability in accounting for tax revenues as well as benefits of tax incentives to the citizen. I presume the skewed nature of incentives to international companies e.g. VAT exemptions while local companies suffer the same burden of tax for the same business, increasing cost of doing business for the local business. A legislation needs to put in place mechanisms to protect local industry growth to spur growth including tax incentives that match the international investors.
The benefits versus the cost of tax incentives to the overall economic growth will need re-evaluation to determine a prudent way to administer.
Nice article !
Comprehensive article broken down to the simplest form. Amazing use of statistics to back up every point raised within. Great application of time frames to give insight and shed light on an on-going issue.
Good stuff 👍🏾
A very informative read.
Wow. Well put. 👏🏿👏🏿
Truly we need to review our country's tax framework especially in relation to the incentives given to the business community to promote investment. It should be more transparent than it is today. The opaqueness of the process just gives a hint or proves to us citizens that the government is and has been taking us on a ride for a very long time. It needs to stop. 💯
“A good place to begin is rigorous analysis of the country’s framework of tax expenditures…”
This!!!!
A listening gvt should take this up already. Well written Lurit 👌🏾
Great insights!I think Tax incentives would spur economic growth, therefore we must have clear tax incentives policies in place to attract investments.
Very well penned article, Well eloborated and enjoyable to read .
This is a well written article. It speaks to the issue of tax expenditure with simplicity, clarity and precision which is key in creating awareness and enlightening the public on such critical issues.
There is indeed a need to review the framework in regards to how the terms of the tax expenditures are designed, who the beneficiaries are and above all the terms of the underlying agreements ought to be readily available and accessible to the public and interested oversight bodies not only to enhance transparency but also to give room for scrutiny on the sustainability of the tax expenditures. The relevant authorities need to make data on the tax expenditures not only readily available and accessible but also in disaggregated form to help elucidate and decode underlying trends and patterns in order to create a clearer picture of the situation surrounding tax expenditures in the country.
This is particularly necessary because with the current state of the Kenyan economy, domestic resource mobilization is very critical since the amounts of revenue forgone as a result of the tax expenditures is quite a number based on the currently available data.
A poignant piece. We need to carefully understand how we move forward given the debt scenario we're currently in...it's impact can impair the economic gains made in the Kibaki era,ballooning debt is a burdern to the present and fututure generations.
Very informative and comprehensive article. I have learned a lot within a short period of time.
An insightful and good read.
Tax is a certainty!
In a letter to a French physicist and member of the American Philosophical Society, Jean-Baptiste Le Roy, as far back as 1789. Benjamin Franklin, one of the founding fathers of the United States wrote; “Our new Constitution is now established, and has an appearance that promises permanency; but in this world, nothing can be said to be certain, except death and taxes.
No country can do without taxes but efficient management of it is to ensure that, social security – infrastructure and social needs for public benefits should not be compromised. Advocacy for an efficient tax regime through blocking leakages and wastes must be sustained.
In this present age, the thrust of any tax system should be automation, modenisation and use of technology to improve revenue, reduce human interface and promote transparency.
It is not enough for investors, including foreigners, to be more interested in transparency, consistency and fairness as they pay taxes everywhere in the world. But to demand a competitive and transparent tax regime rather than kicking against payment entirely. Because, undefined and unclarified grounds hurts business environment much more than clearly tax laws.
An exclusive piece that needs to be read by todays youth to understand more on tax incentives. Great write up!!
A very informative piece. It creates awareness to the people and hopefully it will be one of the topics they use to elect the next government. Thank you for being thorough with the topic. Looking forward to more pieces from you.
Quite intriguing. There's also need for an elaborate policy guideline on who receives incentives and under what circumstances should be offered
A good read. Many Articles on the viability of tax incentives fail to give recommendations on what should be done.The suggestion in this article are a good springboard towards a good tax regime. Brilliant.
The truth in this ! Well put together!
Wonderful Article. Very insightful
Great read noting thst the efficeiency of a government in taxation increases political trust
Well articulated and insightful piece.
Good thoughts and insights there Lurit.
To note, tax incentives if well thought and implemented could spur economic growth especially just coming from the pandemic.
Well said
This article on the utility of tax incentives illustrates the need for transparency and accountability in accounting for tax revenues as well as benefits of tax incentives to the citizen. I presume the skewed nature of incentives to international companies e.g. VAT exemptions while local companies suffer the same burden of tax for the same business, increasing cost of doing business for the local business. A legislation needs to put in place mechanisms to protect local industry growth to spur growth including tax incentives that match the international investors.
The benefits versus the cost of tax incentives to the overall economic growth will need re-evaluation to determine a prudent way to administer.
Nice article !
Comprehensive article broken down to the simplest form. Amazing use of statistics to back up every point raised within. Great application of time frames to give insight and shed light on an on-going issue.
Good stuff 👍🏾
A very informative read.
Wow. Well put. 👏🏿👏🏿
Truly we need to review our country's tax framework especially in relation to the incentives given to the business community to promote investment. It should be more transparent than it is today. The opaqueness of the process just gives a hint or proves to us citizens that the government is and has been taking us on a ride for a very long time. It needs to stop. 💯
“A good place to begin is rigorous analysis of the country’s framework of tax expenditures…”
This!!!!
A listening gvt should take this up already. Well written Lurit 👌🏾
Great insights!I think Tax incentives would spur economic growth, therefore we must have clear tax incentives policies in place to attract investments.