The government is expected to begin the implementation of a new tax regime this year after Parliament last year approved the first ever National Tax policy.
The policy, which was approved by lawmakers following the recommendation of the National Assembly’s Finance Committee, is expected to guide the progressive development and administration of the country’s tax system.
Notable among recommendations made by the Finance Committee chaired by Molo MP Kuria Kimani, is the proposed review of various tax bands ranging from Income Tax, Value Added Tax, Excise Duty, customs and changes in the Miscellaneous Fees & Levies Act.
The Policy was introduced in the House by the Leader of the Majority Party, Kimani Ichungw’a in April 2023.
Its principal object is to enhance revenue mobilization to facilitate the implementation of various programmes by the government.
“The committee having considered the proposed National Tax policy and submission from members recommends that levy/charge levied to support and protect the local manufacturing and investment sector remains unchanged for at least five (5) years to allow growth of those sectors,” Kimani told the House during debate to approve the policy.
The House also approved a recommendation by the Committee calling for an efficient funding structure that would ensure that the settlement of approved tax refunds is done within six months.
The Finance Committee also recommended that local manufactures be exempted from new levies for up to five years, in what it said is a move aimed at providing certainty and predictability of the local business environment.
The National Tax Policy is also geared towards addressing income redistribution, regulation of the consumption of goods or services with negative externalities, employment creation, price stability, economic development through investment promotion and local value addition.
Among the key challenges that the policy identified in the tax system include: a growing tax expenditure, complexities in taxation of emerging economies such as online businesses, low tax compliance, challenges in international taxation and delay in settling tax disputes.
To address the unpredictability of tax rates, the House adopted a recommendation by the Finance Committee that a comprehensive review of taxes be undertaken every five years.
Key among the reforms expected to be rolled out by the National Treasury is the harmonization of the National Tax Policy within the draft 2023 Medium- Term Revenue Strategy to ensure coherence and consistency between the Policy and the Strategy.
The National Treasury is also expected to incorporate a comprehensive glossary defining critical terms and concepts used in the National Tax Policy.
Additionally, the Policy is set to provide guidelines that support economic development, enhance the country’s competitive edge, promote economic diversification, establish tax incentives and to ensure that taxation supports the Country’s Strategies in the mitigation of climate change.
Under the income tax band, the legislators approved that the government sets a capping on the amount of personal income that can be taxed.
“Income taxes should all times be set at an optimal level to guard against the effect Laffer curve and ensure that it does not erode the disposable income/ purchasing power of salaried employees,” Kuria noted during the Motion for the adoption of the Committee Report on the Policy.
The approval of the Policy paves way for reforms towards generation of multiple VAT rates to allow for an opportunity for an alternative rate, as a way to cushion the economy against shocks occasioned by global trends and the adverse effects of price fluctuations.
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