Kenya is set to undertake a sweeping overhaul of its tax regime, with the government’s newly unveiled National Tax Policy aiming to enhance revenue mobilization, promote investments and foster economic growth.
Key measures include regularly revising tax bands and thresholds for inflation, reviewing income tax reliefs, redesigning the PAYE system for greater progressivity, and providing policy guidance on corporate income tax and value-added tax (VAT).
“The tax system shall be designed to treat equally all taxpayers placed in similar circumstances, and treat differently those placed under different circumstances,” the policy document states, underscoring its commitment to fairness and progressivity.
Among the key measures, the government plans to regularly review and adjust tax bands, rates and reliefs to account for inflation and changing economic dynamics. “All income tax reliefs such as personal, mortgage, and insurance reliefs shall be reviewed every five years,” the policy mandates.
Similarly, the Pay As You Earn (PAYE) regime for employment income is set for an overhaul. “The PAYE tax bands will be reviewed and designed to provide for progressive taxation, and a tax-free threshold or personal relief,” according to the guidelines.
On the corporate front, the policy establishes a new framework. “There shall be a single corporate tax rate; No preferential tax rate shall be granted,” it states, adding that any preferential rates for specific policy goals cannot be lower than 50% of the general corporation tax rate.
The Value Added Tax (VAT) system will be streamlined, with “a general VAT rate” and limited exceptions. “Exemption from VAT will be based on consideration of compliance and administration costs or need to provide incentives to investors or cushioning the Kenyans from economic shocks,” the document explains.
To address tax avoidance and keep pace with the digital economy, the policy calls for leveraging technology and aligning the tax regime with international consensus on taxing online businesses and cross-border transactions.
“The Government may put in place information technology systems to facilitate enforcement of compliance with the VAT Act and the Excise Duty Act,” it notes.
The overhaul also targets international taxation challenges, aiming to “develop rules in line with international best practice to address base erosion and profit shifting risks.”
Broadening the tax base is another key priority, with measures to enhance taxation of the agriculture sector and informal businesses. “The policy aims at progressively increasing tax yields from agriculture and the informal sectors,” it states.
Streamlining tax incentives and controlling tax expenditures are also emphasized, with plans for “a framework for granting tax incentives” and regular monitoring of their costs and benefits.
“Effective implementation of the Policy is crucial in ensuring realization of the desired results,” the document underscores, outlining roles for various stakeholders including the National Treasury, Kenya Revenue Authority, judiciary, private sector and civil society.
