KRA announces plan to broaden tax base after agreement with IMF

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The Kenya Revenue Authority (KRA) has unveiled plans to broaden its tax base even as pressure mounts on the government over loans and conditionality from the International Monetary Fund (IMF).

This new development comes barely three months after the tax authorities introduced new taxes in the face of a stagnant economy due to the impact of the Covid-19 pandemic.

In its new plan, the KRA seeks to implement a number of measures that are very likely to see the country’s tax base expanded.

These measures include the implementation of post-clearance audits, a full audit of all exemptions, enhanced scanning and intelligence-based verification of goods at points of entry to achieve its objectives.

Treasury CS Ukur Yatani (right) poses for a photo at Treasury Headquarters, Nairobi, Thursday, June 11, 2020, ahead of the 2020/21 budget presentation

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“We are implementing a number of revenue improvement measures while continuing to leverage technology to improve the efficiency of revenue collection.

“With increased operational efficiency, the Authority is optimistic that the landscape of mobilization and revenue collection in this country will be completely changed,” read a statement from the KRA according to People everyday.

The move comes after the KRA recorded an 11.2 percent tax hike, with a total of Ksh 144 billion collected in March 2021.

The state has come under pressure from the IMF to raise taxes with suggestions made that the value added tax (VAT) on all petroleum products could be doubled to reduce its budget deficit.

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The IMF noted that the country should increase VAT to 16 percent from the current 8 percent.

“If necessary to meet budget targets, capitalize on lower fuel prices by aligning fuel VAT with the standard rate.

“The oversupply and volatility of the oil market would be a positive shock for Kenya, easing potential pressures on the external balance from other sources,” the IMF advised.

The National Treasury has pledged to raise taxes and reduce its payroll in order to receive the Ksh 257 billion IMF loan that angered TBEN.

“One of the main pillars of the strategy is to bring the tax-to-GDP ratio back to the levels reached in recent years (from 12.9% of GDP in fiscal year 20/21 to 15.6% in fiscal years 23/24), so as to generate resources to meet Kenya’s development needs, ”reads a document explaining the agreement with the IMF.

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The loan will be phased in over three years and reviews will also be carried out to ensure compliance.

Part of the Ksh 255 billion credit facility is supposed to help address weaknesses in SOEs that are in dire need of financial assistance.

The new taxes will impose on TBEN already struggling with a tax at a minimum rate of 1% of gross turnover, among others introduced on January 1, 2021.

International Monetary Fund building in Washington DC.

International Monetary Fund building in Washington DC.

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