Highly paid Kenyans are headed for more tax pain in the coming year when the Treasury is expected to increase income tax bands “to reflect the inflationary impact of annual salary increments.”
Treasury secretary Henry Rotich said on Tuesday that a review of the income tax law to reflect the new reality would come in the next Finance Bill—expected early next year.
Tax experts, however, warned that an Income Tax review remains a hot political issue that will be difficult to implement in an election year. The General Election is set to be held next August.
The planned review follows the Treasury’s recent offer of tax relief to the lowest income earners, who are expected to be spared any fresh pain.
“We want to make the income tax law progressive. We have seen salaries change with inflation while the tax bands have remained the same for a long time. The adjustments we did in the last Finance Bill were just for the lower income earners, but this time we will have more comprehensive changes,” said Mr Rotich, without indicating the extent of the adjustments.
“I do not yet know exactly how the tax bands will shift given that this review is still work in progress, but it should be largely based on the per capita income,” he said.
The income tax law is the only major tax legislation that has not been reviewed comprehensively in the past three years. The government reviewed the VAT Act in 2014, and followed it up with a review of the Excise Duty Act last year.
In the June reforms, Mr Rotich widened the lower tax bands by 10 per cent, meaning that the lowest band of taxable income, which attracts a tax rate of 10 per cent now starts at Sh11,181, up from Sh10,164 previously.
The upper band floor was fixed at Sh42,782.30 per month, from Sh38,893 per month and attracts the top tax rate of 30 per cent.
There have been calls to review tax rates upwards for high income earners, in order to boost tax revenue from a group that is seen to be capable of absorbing such a rise without erosion of their living standards.
The Institute of Certified Public Accountants of Kenya (ICPAK), a key advisor on economic affairs, has proposed that the tax on salaries above Sh800,000 per month be increased to 40 per cent from the current 30 per cent.
ICPAK at the same time wants the 30 per cent income tax rate paid by top earners to be charged on those earning Sh150,000 and above per month to ease pressure on middle income workers who it says are being weighed down by the tax.
“The upper tax band should fall on individuals earning above Sh150,000. This will free up a lot of disposable income from the majority of the country’s lower income earners who are overburdened by the current tax regime,” ICPAK’s tax workgroup member and EY tax partner Francis Kamau said.
Credit: Business Daily