According an article published in the September 11, 2018 edition of the Business Daily, the Kenya Revenue Authority(KRA) missed its fiscal year target of Sh1.65 trillion by 11 per cent, collecting approximately Sh1.48 trillion to make it the sixth straight year that the authority has continuously missed its collection target.
The last time KRA surpassed its revenue collection target was in 2011 when the Authority announced revenue collection of Sh4.1 billion above the target falsely convincing the Treasury that it was on top of its game. The persistent failure to meet revenue targets has come with far-reaching implications for the economy.
The country has been compelled to borrow heavily from the local and international markets, a scenario that has partly sparked the current row over controlling lending rates. Banks, struggling to obtain deposits, have been barely staying afloat. Because of the huge budget deficits, the Treasury has been disconcertingly piling debts.
Currently, the Kenya’s current public debt stands at approximately Sh4.884 trillion ($49 billion) or 56.4 per cent of the country’s gross domestic product. This is up from 42.8 per cent in 2008. This simply means that the country owes more than half the value of its economic output (GDP).
This is despite the recommendations by the International Monetary Fund that ratios of public debt to GDP should not be higher than 40 per cent for developing countries. Although the taxman blames the shrinking company profits and the massive employees layoffs as the main contributor to the missed targets, tax policy experts opine that the fewer taxpayers, less economic activities, and fewer income sources is the cause of the shortfalls.
KRA has left crucial economic segments outside the tax bracket and stuck to a few overburdened traditional payers in the formal sector. KRA has been focusing on the formal sector, which is easier to tax, encouraging taxpayers to shift to the informal sector to avoid the taxman.
As more taxpayers escape the tax net, they leave the burden of financing the national budget to the few workers in formal employment. The informal sector has been growing exponentially over the years as more and more people venture in to the sector. More interestingly, even most people in the formal sector have been investing in the informal sector as a means of getting an additional source of livelihood. Despite the enormous growth, the informal sector has been a hard nut to crack for many tax administrations owing largely to lack of defined structures.
While acknowledging that the sector is a high revenue generator, KRA has been unsuccessful in putting informal sector players within the tax bracket. KRA has commissioned several initiatives to increase its taxpayer’s base. 3.2 million Kenyans filed their 2017 income tax returns as at June 30, 2018 against the more than eight million active Personal Identification Numbers (PIN).
Despite the small percentage of the filed returns, this represents a 60 per cent growth compared to the previous financial year, which saw two million Kenyans file their returns in as at June 30, 2017.
The growth is attributable to the iTax system but KRA has a long way to go. For instance, due to our ineffective tax code there are individual property owners who are currently not filing tax returns despite earning rental income that is within the tax bracket.
Currently, only 15,000 individual property owners file tax returns annually against the estimated 100,000 who are eligible. The informal sector including property owners in various estates in Nairobi raking in millions without paying tax remains at large.
The large cash bases public transport in Kenya also deny the tax man revenues while the lowest paid employee have their dues chopped at the source to support the skewed revenue collection whose use in many cases is questionable. Our Income Tax Act has many loopholes, which make it difficult to draw a line between tax avoidance and tax evasion.
However, KRA should not tell people to appeal to their conscience to pay taxes. As long as the government cannot account for all the revenue it collects, then taxpayers cannot feel guilty for not paying taxes.
KRA needs to transform from an enforcement body to a service one and create a staff establishment that is professional, courteous, accessible and proactive in solving customer problems. In addition, the Authority needs to educate SMEs, business owners and corporates on the importance of paying taxes.
Dominic Nzuki, strategy consultant, Altima Africa Limited.
World Bank pushes G-20 to extend debt relief to 2021
World Bank Group President David Malpass has urged the Group of 20 rich countries to extend the time frame of the Debt Service Suspension Initiative(DSSI) through the end of 2021, calling it one of the key factors in strengthening global recovery.
“I urge you to extend the time frame of the DSSI through the end of 2021 and commit to giving the initiative as broad a scope as possible,” said Malpass.
He made these remarks at last week’s virtual G20 Finance Ministers and Central Bank Governors Meeting.
The World Bank Chief said the COVID-19 pandemic has triggered the deepest global recession in decades and what may turn out to be one of the most unequal in terms of impact.
People in developing countries are particularly hard hit by capital outflows, declines in remittances, the collapse of informal labor markets, and social safety nets that are much less robust than in the advanced economies.
For the poorest countries, poverty is rising rapidly, median incomes are falling and growth is deeply negative.
Debt burdens, already unsustainable for many countries, are rising to crisis levels.
“The situation in developing countries is increasingly desperate. Time is short. We need to take action quickly on debt suspension, debt reduction, debt resolution mechanisms and debt transparency,” said Malpass.
Kenya’s Central Bank Drafts New Laws to Regulate Non-Bank Digital Loans
The Central Bank of Kenya (CBK) will regulate interest rates charged on mobile loans by digital lending platforms if amendments on the Central bank of Kenya Act pass to law. The amendments will require digital lenders to seek approval from CBK before launching new products or changing interest rates on loans among other charges, just like commercial banks.
“The principal objective of this bill is to amend the Central bank of Kenya Act to regulate the conduct of providers of digital financial products and services,” reads a notice on the bill. “CBK will have an obligation of ensuring that there is fair and non-discriminatory marketplace access to credit.”
According to Business Daily, the legislation will also enable the Central Bank to monitor non-performing loans, capping the limit at not twice the amount of the defaulted loan while protecting consumers from predatory lending by digital loan platforms.
Tighter Reins on Platforms for Mobile Loans
The legislation will boost efforts to protect customers, building upon a previous gazette notice that blocked lenders from blacklisting non-performing loans below Ksh 1000. The CBK also withdrew submissions of unregulated mobile loan platforms into Credit Reference Bureau. The withdrawal came after complaints of misuse over data in the Credit Information Sharing (CIS) System available for lenders.
Last year, Kenya had over 49 platforms providing mobile loans, taking advantage of regulation gaps to charge obscene rates as high as 150% a year. While most platforms allow borrowers to prepay within a month, creditors still pay the full amount plus interest.
Amendments in the CBK Act will help shield consumers from high-interest rates as well as offer transparency on terms of digital loans.
Scope Markets Kenya customers to have instant access to global financial markets
NAIROBI, Kenya, Jul 20 – Clients trading through the Scope Markets Kenya trading platform will get instant access to global financial markets and wider investment options.
This follows the launch of a new Scope Markets app, available on both the Google PlayStore and IOS Apple Store.
The Scope Markets app offers clients over 500 investment opportunities across global financial markets.
The Scope Markets app has a brand new user interface that is very user friendly, following feedback from customers.
The application offers real-time quotes; newsfeeds; research facilities, and a chat feature which enables a customer to make direct contact with the Customer Service Team during trading days (Monday to Friday).
The platform also offers an enhanced client interface including catering for those who trade at night.
The client will get instant access to several asset classes in the global financial markets including; Single Stocks CFDs (US, UK, EU) such as Facebook, Amazon, Apple, Netflix and Google, BP, Carrefour; Indices (Nasdaq, FTSE UK), Metals (Gold, Silver); Currencies (60+ Pairs), Commodities (Oil, Natural Gas).
The launch is part of Scope Markets Kenya strategy of enriching the customer experience while offering clients access to global trading opportunities.
Scope Markets Kenya CEO, Kevin Ng’ang’a observed, “the Sope Markets app is very easy to use especially when executing trades. Customers are at the heart of everything we do. We designed the Scope Markets app with the customer experience in mind as we seek to respond to feedback from our customers.”
He added that enhancing the client experience builds upon the robust trading platform, Meta Trader 5, unveiled in 2019, enabling Scope Markets Kenya to broaden the asset classes available on the trading platform.