Kenyan taxpayers are headed for tough times following Wednesday’s release of official documents showing they will be required to contribute Sh188 billion more in tax revenues to finance a Sh2.62 trillion budget.
Treasury secretary Henry Rotich submitted to Parliament an expenditure plan that is significantly higher than this year’s Sh2.48 trillion and which comes with a Sh188.5 billion increase in tax revenues to Sh1.5 trillion.
Payroll and excise taxes top the list of levies expected to generate billions of shillings in the near term, signalling a possible increase in tax rates given the tough economic conditions that have wiped out many formal sector jobs.
“This performance will be underpinned by ongoing reforms in tax policy and revenue administration, through automation and inter-agency collaboration and connectivity,” the Treasury said in a statement, adding that the government plans “to complete review of the Income Tax law to modernise and align it to international practice.”
Income tax revenue from individuals (PAYE), for instance, is projected to rise from Sh343.7 billion to Sh400.5 billion, a target that will be difficult to meet at the current tax rates and with ongoing retrenchments of workers in the private sector.
In the past five years, payroll taxes increased by less than Sh40 billion annually and the expectation that it will contribute Sh56 billion more in the new financial year signals a possible tweaking of the tax bands to boost collections.
Such a move would ordinarily target high-income earners who pay an effective tax of about 30 per cent.
The PAYE bands were recently tweaked to give workers a monthly tax break of between Sh181 and Sh609 and the planned reforms could wipe out the marginal gains that some employees made from recent reforms.
The first band is charged tax at the rate of 10 per cent from where the charges rise to a maximum of 30 per cent (now applicable to those earning more than Sh42,781 a month).
Credit: Business Daily