The standard for tax expenditures is about 2% of gross domestic product.
Source: Ukur Yatani, Kenya’s cabinet secretary for the treasury (June 2020)
Explainer: Experts said there was no “standard” or even average for tax expenditures.
The day before he delivered his 2020/21 budget, Kenya’s treasury cabinet secretary Ukur Yatani said tax breaks would be reduced because they cut government revenue.
He said “tax expenditures” – the cost of tax breaks – were about 6% of Kenya’s GDP, while the “standard” was just 2%.
Experts said there was no global standard for tax expenditures, and different tax systems in different countries meant even an average would not be a useful comparison.
Researched by Vincent Ng’ethe
Kenya’s government is looking to reduce tax breaks it has given to attract investment.
In recent years authorities have been inundated with requests for reduced taxation, cabinet secretary for the treasury Ukur Yatani said the day before he presented his 2020/21 budget.
“We have people going to treasury and to parliament asking for tax exemptions, for zero rating of their products and for reduced taxation,” he said in a 10 June TV interview.
An April cut in value-added tax and income tax had, for example, cost the treasury “about KSh172 billion”, he said.
Rolling back tax concessions would not be popular with the business community, he added, but continuing with them would be too costly.
But does such a standard exist? We checked.
Expenditures close to 6% in 2017
We contacted Yatani to ask for the source of his claim and will update this report with his response. He previously told Africa Check that certain tax relief measures had missed their target.
“Sometimes we give concessions in terms of tax exemptions and the benefits are not passed on to the intended beneficiaries,” he said in May 2020 when we found that the country has since 2010 missed its revenue targets.
In 2017, the country’s tax agency missed its revenue target by KSh300 billion.
What are tax expenditures?
Tax expenditures are “a government’s estimated revenue loss that results from giving tax concessions or preferences to a taxpayer or activity”. This is according to the International Budget Partnership, an organisation that focuses on the spending of public funds.
In a 2019 report on fiscal transparency in Kenya, the International Monetary Fund said tax expenditures were “provisions of tax law, regulations, or practices that reduce or postpone revenue for certain taxpayers relative to a benchmark tax”.
These include exemptions from taxation, reductions in the amount owed, reduced tax rates and delays in paying tax.
But there is little data on expenditures in Kenya, as it “does not publish any regular report that comprehensively discloses the estimated revenue losses from tax expenditures”, the IMF said.
In a January 2020 report, the Center for Global Development said it was “difficult to make a conclusive judgment about the considerations that go into providing tax incentives in Kenya” as they were not clearly recorded.
Is there a global ‘standard’ for tax expenditures?
We asked several experts if there was a standard or even average for tax expenditures.
Dr Sanjeev Gupta is a senior policy fellow at the Center for Global Development (CGD), a US-based think tank, who previously worked in public finance at the IMF.
He told Africa Check was no international standard for tax expenditures. “There is no such rule — the numbers are all over the place.”
He said he also did not know of a standard for tax breaks. “As far as I know, there’s no unique and agreed standard or limit for what the overall size of tax expenditures should be.”
Dr Giulia Mascagni is research director at the International Centre for Tax and Development (ICTD) in the UK. She told us that while she could not speak directly to the cabinet secretary’s claim, she was not aware of a recommended standard.
“I don’t think there is a generally agreed level of tax expenditures as a share of GDP that is ‘right’ or ‘optimal’.”
So what do countries spend on tax expenditures?
De Renzio said he “would agree with the cabinet secretary that levels between 2% and 3% of GDP are very common across countries”, as shown in his data.
Christian von Haldenwang, a senior researcher at the German Development Institute, is preparing a global database on tax expenditures that should be complete by the end of 2020.
He said 17 African countries publish this data, with tax expenditures ranging from 0.6% of GDP for the Republic of Congo to 7.8% for Senegal. Kenya is not in the database as it does not publish information on tax breaks.
The average tax expenditures for the 17 countries is 2.9% of GDP – although this isn’t necessarily the full picture.
In a 2018 blog, the CGD’s Gupta said tax concessions were 5% of GDP or more for a third of 34 countries listed.
Are tax expenditures comparable?
Von Haldenwang cautioned against using the 2.9% figure as an average.
“I would be reluctant to take this average or any other figure as a standard, let alone a good practice,” he said.
“To start with, tax expenditures are always deviations from a benchmark tax system, and since every country has its own individual tax system, deviations from them are also highly case-specific.”
Gupta agreed that tax concessions were “not comparable” as different countries calculated them differently.
What are the benefits of tax breaks?
Minister Yatani was on surer footing when he said the cost of tax concessions outweighed their benefit.
It was “generally true” that many African and low-income countries granted more incentives they should, the ICTD’s Mascagni said.
“Often incentives are provided in a way that is not transparent or based on a clear economic rationale, and therefore represent a revenue loss that might not have a clear justification.”
Gupta told Africa Check that countries should look to minimise these exemptions as they are often discretionary and outside the budgeting process.
“They are decided and agreed upon by parliament, without due regard to their effect on tax revenue,” he said. He added that they were often abused.
“Companies that operate within the tax-break window often close and move to different jurisdictions just before the full tax rate comes into effect, or frequently change names and start enjoying the tax holiday afresh as a new entity.”
Conclusion: No ‘standard’ for tax expenditure – 2% of GDP or otherwise
Ahead of his June 2020 budget, Kenya’s treasury cabinet secretary Ukur Yatani said tax breaks would be rolled back because they reduced government revenue.
The cost of concessions in “tax expenditures” for the treasury was about 6% of Kenya’s GDP, way more than the 2% “standard”, he said.
Experts told Africa Check there wasn’t a global standard for tax expenditures. Tax concessions can’t be compared across countries, so an average would be meaningless.
Kenya is one of many countries that do not publish data on tax expenditure. The International Monetary Fund has urged the country to do this to make its budget more transparent.
Public officers above 58 years and with pre-existing conditions told to work from home: The Standard
Head of Public Service Joseph Kinyua. [File, Standard]
In a document from Head of Public Service, Joseph Kinyua new measure have been outlined to curb the bulging spread of covid-19. Public officers with underlying health conditions and those who are over 58 years -a group that experts have classified as most vulnerable to the virus will be required to execute their duties from home.
However, the new rule excluded personnel in the security sector and other critical and essential services.
“All State and public officers with pre-existing medical conditions and/or aged 58 years and above serving in CSG5 (job group ‘S’) and below or their equivalents should forthwith work from home,” read the document,” read the document.
To ensure that those working from home deliver, the Public Service directs that there be clear assignments and targets tasked for the period designated and a clear reporting line to monitor and review work done.
SEE ALSO: Thinking inside the cardboard box for post-lockdown work stations
Others measures outlined in the document include the provision of personal protective equipment to staff, provision of sanitizers and access to washing facilities fitted with soap and water, temperature checks for all staff and clients entering public offices regular fumigation of office premises and vehicles and minimizing of visitors except by prior appointments.
Officers who contract the virus and come back to work after quarantine or isolation period will be required to follow specific directives such as obtaining clearance from the isolation facility certified by the designated persons indicating that the public officer is free and safe from Covid-19. The officer will also be required to stay away from duty station for a period of seven days after the date of medical certification.
“The period a public officer spends in quarantine or isolation due to Covid-19, shall be treated as sick leave and shall be subject to the Provisions of the Human Resource Policy and procedures Manual for the Public Service(May,2016),” read the document.
The service has also made discrimination and stigmatization an offence and has guaranteed those affected with the virus to receive adequate access to mental health and psychosocial supported offered by the government.
The new directives targeting the Public Services come at a time when Kenyans have increasingly shown lack of strict observance of the issued guidelines even as the number of positive Covid-19 cases skyrocket to 13,771 and leaving 238 dead as of today.
SEE ALSO: Working from home could be blessing in disguise for persons with disabilities
Principal Secretaries/ Accounting Officers will be personally responsible for effective enforcement and compliance of the current guidelines and any future directives issued to mitigate the spread of Covid-19.
Uhuru convenes summit to review rising Covid-19 cases: The Standard
President Uhuru Kenyatta (pictured) will on Friday, July 24, meet governors following the ballooning Covid-19 infections in recent days.
The session will among other things review the efficacy of the containment measures in place and review the impact of the phased easing of the restrictions, State House said in a statement.
This story is being updated.
SEE ALSO: Sakaja resigns from Covid-19 Senate committee, in court tomorrow
Drastic life changes affecting mental health
Kenya has been ranked 6th among African countries with the highest cases of depression, this has triggered anxiety by the World Health Organization (WHO), with 1.9 million people suffering from a form of mental conditions such as depression, substance abuse.
Globally, one in four people is affected by mental or neurological disorders at some point in their lives, this is according to the WHO.
Currently, around 450 million people suffer from such conditions, placing mental disorders among the leading causes of ill-health and disability worldwide.
The pandemic has also been known to cause significant distress, mostly affecting the state of one’s mental well-being.
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With the spread of the COVID-19 pandemic attributed to the novel Coronavirus disease, millions have been affected globally with over 14 million infections and half a million deaths as to date. This has brought about uncertainty coupled with difficult situations, including job loss and the risk of contracting the deadly virus.
In Kenya the first Coronavirus case was reported in Nairobi by the Ministry of Health on the 12th March 2020. It was not until the government put in place precautionary measures including a curfew and lockdown (the latter having being lifted) due to an increase in the number of infections that people began feeling its effect both economically and socially.
A study by Dr. Habil Otanga, a Lecturer at the University of Nairobi, Department of Psychology says that such measures can in turn lead to surge in mental related illnesses including depression, feelings of confusion, anger and fear, and even substance abuse. It also brings with it a sense of boredom, loneliness, anger, isolation and frustration. In the post-quarantine/isolation period, loss of employment due to the depressed economy and the stigma around the disease are also likely to lead to mental health problems.
The Kenya National Bureau of Statistics (KNBS) states that at least 300,000 Kenyans have lost their jobs due to the Coronavirus pandemic between the period of January and March this year.
KNBC noted that the number of employed Kenyans plunged to 17.8 million as of March from 18.1 million people as compared to last year in December. The Report states that the unemployment rate in Kenya stands at 13.7 per cent as of March this year while it stood 12.4 per cent in December 2019.
Mama T (not her real name) is among millions of Kenyans who have been affected by containment measures put in place to curb the spread of the virus, either by losing their source of income or having to work under tough guidelines put in place by the MOH.
As young mother and an event organizer, she has found it hard to explain to her children why they cannot go to school or socialize freely with their peers as before.
“Sometimes it gets difficult as they do not understand what is happening due to their age, this at times becomes hard on me as they often think I am punishing them,”
Her contract was put on hold as no event or public gatherings can take place due to the pandemic. This has brought other challenges along with it, as she has to find means of fending for her family expenditures that including rent and food.
“I often wake up in the middle of the night with worries about my next move as the pandemic does not exhibit any signs of easing up,” she says. She adds that she has been forced to sort for manual jobs to keep her family afloat.
Ms. Mary Wahome, a Counseling Psychologist and Programs Director at ‘The Reason to Hope,’ in Karen, Nairobi says that such kind of drastic life changes have an adverse effect on one’s mental status including their family members and if not addressed early can lead to depression among other issues.
“We have had cases of people indulging in substance abuse to deal with the uncertainty and stress brought about by the pandemic, this in turn leads to dependence and also domestic abuse,”
Sam Njoroge , a waiter at a local hotel in Kiambu, has found himself indulging in substance abuse due to challenges he is facing after the hotel he was working in was closed down as it has not yet met the standards required by the MOH to open.
“My day starts at 6am where I go to a local pub, here I can get a drink for as little as Sh30, It makes me suppress the frustration I feel.” he says.
Sam is among the many who have found themselves in the same predicament and resulted to substance abuse finding ways to beat strict measures put in place by the government on the sale of alcohol so as to cope.
Mary says, situations like Sam’s are dangerous and if not addressed early can lead to serious complications, including addiction and dependency, violent behavior and also early death due to health complications.
She has, however, lauded the government for encouraging mental wellness and also launching the Psychological First Aid (PFA) guide in the wake of the virus putting emphasis on the three action principal of look, listen and link. “When we follow this it will be easy to identify an individual in distress and also offer assistance”.
Mary has urged anyone feeling the weight of the virus taking a toll on them not to hesitate but look for someone to talk to.
“You should not only seek help from a specialist but also talk to a friend, let them know what you are undergoing and how you feel, this will help ease their emotional stress and also find ways of dealing with the situation they are facing,” She added
Mary continued to stress on the need to perform frequent body exercises as a form of stress relief, reading and also taking advantage of this unfortunate COVID-19 period to engage in hobbies and talent development.
“Let people take this as an opportunity to kip fit, get in touch with one’s inner self and also engage in reading that would help expand their knowledge.