How Rotich can make Kenyans happy without cutting tax rates

Business Daily Kenya: 

Cabinet secretary Henry Rotich. Photo/File

Stanley Ngundi

When presenting the Budget Statement last year, Treasury Cabinet secretary Henry Rotich offered goodies to Kenyans by raising the tax bands by 10 percentage points along with increased the monthly personal relief (MPR) through Sh1,162 to Sh1,280, amounting to tax savings of up to Sh609 per month.

I was taught to be thankful, even for the little things, along with here can be my Asante Sana to Rotich! the item could be quite ambitious to expect more Pay As You Earn (PAYE)-related goodies through the Cabinet secretary in This specific year’s budget statement.

However, Rotich could still make us happier without reducing the personal tax rates as we could all desire for. Here are my suggested simple interventions that will could go a long way: The process of filing income tax returns has been simplified over the past few years.

through e-filing of tax returns, which was made mandatory for individuals having a taxable income through 2015 financial year onwards, we have moved to e-assessment of the returns.

Compared to what some different countries have done, a lot more can be done to make tax payments easier along with may be even rewarding. I highlight four global best practices that will Kenya can adopt, starting through This specific year’s budget.

Pre-filled income tax returns

could the item not be nice, if all that will you had to do was to sign off on an Income Tax return sent to you by the KRA? In Denmark along with Sweden, pre-tax returns are sent to taxpayers detailing their taxable income along with taxes dues.

Taxpayers can indicate their acceptance of the pre-filled return by email, phone, SMS or on paper. In Denmark, a “no response” can be deemed to be acceptance of the tax return.

In Australia, all financial transactions are linked to the taxpayer’s identification number, which can be made available to the Australian Tax Authorities along with can be added within the individual’s online tax return form.

different countries that will have a pre-filled return mechanism in place, in some form or the different, include Chile, Estonia, Finland, Iceland, Norway, Slovenia along with Spain.

Suggestion: In Kenya, the taxpayer’s personal information can be available based on the past Income Tax returns. In addition, details of tax deduction at source are available in Form xxx (which can be the annual tax statement available on the KRA’s iTax portal).

We could take This specific a step further as the PIN can be linked to almost all transactions. Data drawn through banks (such as interest on fixed savings accounts, interest paid or repayment of loans), data through employer on salary earned, to name a few, could be easily collated along that has a pre-filled return made available to the taxpayer.

E-assessments

the item reduces interface with the KRA, saves time along with can be believed to even cut down on corruption. In Brazil, a multi-layered tax digitisation project (called SPED) enables tax authorities to make inquiries via email, including providing a link to the tax authority’s web page, where taxpayer’s responses can be submitted.

Suggestion: Kenya has taken a step in This specific direction by way of having the modules inbuilt within the iTax portal. However, the modules are not operational along with taxpayers are still served with hard paper tax assessments.

The process should be hastened. Restructuring of income tax bands Fewer income tax bands, or even a flat tax rate without additional surcharge, simplifies income tax calculations along with provides administrative ease.

Less complexity translates into more tax compliance along with even broadening of a country’s tax base, something which can be sorely needed in Kenya. Countries such as the UK along with Denmark have a three-tier band structure.

Singapore, Romania, Switzerland, Czech Republic, Hungary along with Saudi Arabia have a flat tax rate applicable at all levels of income. Suggestion: Kenya follows a 5-tier income tax band structure where the tax rate increases with the level of income.

Those earning taxable income of Sh11,180 per month, or less, pay no tax whereas the highest band of 30 per cent starts upward of monthly income of Sh42,784.

Reducing the number of income tax slabs will be very welcome. Ngundi can be a tax manager with EY. Views expressed within the article are personal along with may not represent the firm’s view.

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How Rotich can make Kenyans happy without cutting tax rates

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