PKF is calling for restructuring of the country’s debt to match the life of key ongoing projects to avoid getting into a debt trap. It recommends alternative sources of financing such as the public private partnerships..
Kenya’s debt has ballooned over the last few years with 50% of the debt being foreign,and therefore the stability of exchange rates will play a big role in sustainability of these debts going forward. Most of this debt has been expended towards big infrastructural projects whose benefits will be realized in the long term.
PKF is recommending the Creation of a national database by the government as a reference point for national development initiatives.
The end users will refer to the database to inform planning for the Big 4 Agenda initiatives and other development programmes.
Accurate planning requires accurate data. The huduma namba project rolled out in 2019 was meant to build and secure ‘big data’ that is necessary for planning and making informed economic decisions.
The Government targets to achieve national food and nutrition security and in execution of this mandate, the government needs a national database of farming households and subsequently all farmers in the country. Achieving national food security will be largely informed by a comprehensive register of all farmers in Kenya.
The database will also assist in planning for achievement of universal healthcare through provision of background information needed for registration for provision of universal healthcare services under the National Hospital Insurance Fund. The same information will be easily accessible for use by relevant stakeholders in the health sector. Accurate patient identification is necessary in order to administer proper diagnosis and agenda.
The database will provide information on number of households and number of family members. This will guide the policy makers with the background information for assessment of status of housing in the country. The information will be an authentic source of civil data which is important for planning purposes in the delivery of the Affordable Housing targets.
The database will generate biodata on persons’ employment status and main occupation. Persons engaged in production of raw materials are critical in providing the same for development of industries which create employment. To attract investors in the Manufacturing sector and spur growth in the labour market, updated data on persons is needed for planning purposes.
PKF position on Taxation Measures
Lack of a clear tax policy: PKF is proposing that the government adopts a long- term and cogent tax policy. Kenya’s tax statutes it notes are littered with annual/bi-annual amendments. Besides creating room for additional tax collection, most of these changes in tax lack a philosophical orientation. In some instances, taxes such as betting tax which was scrapped in 2020 is now proposed to be re-introduced just one year down the line!
Minimum tax: This tax was introduced by the Finance Bill 2020. Subsequently this has been suspended by the High Court pending full hearing on its constitutionality. Minimum tax was ill-advised as it has the impact of crippling both small and large businesses, especially those businesses with high turnover but low margins, large capital outlay and those that have huge capital allowances. The Government should re-think the practicality of this tax besides its constitutionality.
VAT on essential goods: The Finance Bill 2021 proposes to introduce VAT on bread at a time family have lost income, businesses have collapsed, and the worst is still beckoning, yet the government find it fit to tax bread- which due to lack of an alternative has become a majority of Kenyans staple food.
VAT on exported services: The 2021 Finance Bill proposes to change the classification for exported services from zero-rate to exempt. This change means that suppliers of exported services will not be allowed to claim their input VAT thus making such supplies a lot more expensive. This is against international best practice as recommended by the OECD and practiced by almost all countries in the world. The proposed change contradicts government’s effort of implementing the Konza city dream- a dream that seeks to make Kenya Africa’s Silicon Valley. By changing the zero-rated status of export of services, the government is loudly pronouncing the death of konza city dream. No investor would gamble their money at konza if they will suffer additional VAT under the proposed new tax. It is time for Treasury to enact a clear and cogent tax policy for the country.
Withholding VAT exemption: The Bill proposes to scrap the legal regime for exempting companies that are in perpetual VAT refund from the withholding VAT regime. This means that such companies will accumulate huge VAT credits/refunds for which they have to wait for a long time to utilize or they have to apply for a refund later on. This will further complicate vat refunds backlog since KRA has not been able to settle these in good time. This will unnecessarily and unfairly deny businesses their rightful funds which are necessary to support their operations especially during thepandemic hence mitigate the disruption caused to our economy.
VAT exemption tariff chapter 84 and 85: The Finance Act 2020 introduced VAT on machinery of tariff chapters 84 and 85. These are heavy machinery required for our industrial success. As a result, many businesses will end up with huge input VAT credits that will result in significant VAT refund claims that are never processed and paid on time by KRA. The cost of deploying big projects will rise as a result since businesses are now forced to borrow in order to finance VAT.
Common Reporting Standards: The Finance Bill 2021 proposes to introduce regulations to govern the common reporting standards. The Common Reporting Standards were developed by the OECD to tackle illicit flow of funds, tax evasion and improve tax transparency and compliance. This means that offshore bank accounts for Kenyan residents will now be accessible to the KRA. Strict sanctions have been proposed for non-compliance with reporting obligations by financial institutions. This is a very welcome proposal asit will help to addresse the endemic issue of corruption.
Country-by-Country reporting: The finance Bill has proposed to have Kenyan multinationals disclose transactions in foreign jurisdictions. This is aimed at giving visibility to KRA on tax affairs of these Kenyan multinationals in all jurisdictions they operate in. Government needs to consider extending the CbC reporting requirements to also cover non-Kenyan multinationals.