With the recent release of the BBI Report, some noteworthy points were made about encouraging youth entrepreneurship, lowering the tax burden on the lowest earners and making the overall system fairer.
Concurrently the new Kenya Revenue Authority commissioner-general has been making changes to go after the wealthiest evaders, the new Cabinet Secretary at Treasury is making the right noises about reducing the outflow of money from Treasury and not to mention the Central Bank Governor has issued thunderous sermons about fiscal incontinence in the past having affected the monetary policy negatively.
The time is now ripe for reshaping Kenya’s entire taxation system to create a low-tax, high-incentive and robust taxation system. Creating incentives to create jobs, provide healthcare and housing and education would be the ideal outcome, and the BBI report makes plain that Kenyan’s opined that fairness and progressiveness was just as important.
Whatever the origins, our personal taxation system has evolved into a web of consumption taxes under various guises (VAT, levies, duties, excise and so on), and a system of corporate taxes set off by subsidies. This is failing to generate sufficient revenue, may well be jamming up the economy and is starting to lose legitimacy in the minds of Wananchi.
The complexity of this system is akin to a bigger economy with the capacity to absorb compliance, regulation, monitoring and enforcement costs. Here, where we gather 17% of GDP value through taxation, our complex model should not be ideally considered fit-for-purpose anymore.
When the BBI committee heard about lack of fairness, remember our Pay-As-You-Earn system generates 33% of Government revenue from only 10% of the population, and remarkably manages to tax housemaids and shamba workers at higher rates than owners of the land they work on and the slum-lords they pay rent to.
Broadening the tax net has to be a priority – the current system is not generating enough to sustain Government’s role in economic growth. Whether that speaks to Government spending too much money from what it receives improperly is another matter the Report touches on, but not within the scope of this discussion.
What would a new system look like?
A portion of the country’s lowest earners should simply pay no more tax. Every family collectively earning less than Sh540,000 per year (Band 1) pays no taxes, no NSSF, no NHIF, nothing. For families earning Sh540,000 to Sh1.2 million (Band 2) charge a 10 percent rate, and above Sh1.2 million (Band 3) make it 20 percent. No deductibles, no exemptions and no subsidies. Income would be defined as all salaries, allowances and bank or debt instrument interest.
The flipside of this slashing of income taxes would be using higher consumption tax. Thus duties, excise, levies and VAT would be consolidated into a single VAT rate applied on everything at a high 30 percent. Only raw food products, medical services and pharma, school-books and materials, contraceptive and menstrual aides, and monthly rent on housing below Sh40,000 would be exempt.
The writer is a financial analyst in Canada.
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.