Shock as Kenya loses US dollars 1.1 billion annually through tax incentives and exemptions

EVANS KANINI By EVANS KANINI, 19th May 2014 | Follow this author | RSS Feed
Posted in Wikinut>Writing>Society & Issues

US dollars 21 trillion hidden in tax heavens as gap between the rich and the poor widens daily to the chagrin of the helpless citizenry


Kenya is losing over Ksh 100 billion (US$ 1.1 billion) a year from all tax incentives and exemptions, according to the plain-speaking coordinator of the East African Tax and Governance Network (EATGN), Miss Lucky Star Miyandazi.

"Of these, trade-related tax incentives were at least KShs 12 billion (US$ 133 million) in 2007/08 and may have been as high as US$ 566.9 million", she said, while addressing a stakeholder meeting on the double taxation agreement between Kenya and Mauritius at the Hilton hotel in Nairobi-Kenya's capital city.

The shocking loss was based on recent government estimates, Miyandazi revealed.

"Thus the country is being deprived of badly-needed resources to reduce poverty and improve the general welfare of the population", she told the hushed gathering.

In 2010/11, the government spent more than twice the amount on providing tax incentives (using the figure of Ksh 100 billion) than on the country’s health budget– a serious situation when 46% of Kenya’s 40 million people live in poverty (less than US$ 1.25 a day).' (20i2

Miyandazi further shocked the meeting by stating that US dollars 21 trillion is hidden in tax heavens.

"US dollars 1 trillion is lost to developing countries every year' from the latest 2014 statistics", she said.

Recently, pro-democracy protesters in Kenya penned a strongly-worded letter to local Members of parliament on citizens concerns on nagging tax issues and growing inequality.

Said the letter:

"As members of civil society organizations and citizen’s networks working towards establishing a vibrant tax justice movement across the Eastern Africa region that mobilizes citizen participation in influencing policy and practice for a just and equitable society, we write to respectfully draw your attention to the following urgent matters of taxation and inequality, that have a significant impact on Kenya’s capacity to raise domestic revenue and sustainable resources for inclusive growth and development.

We would like to emphasize the following urgent issues: address rising inequality in Kenya, and end harmful tax incentives.

Address tax inequality- our country has one of the strongest tax systems in sub-Saharan Africa.

However, Kenya has extensive shortcomings in the area of tax equity and remains one of the most unequal societies in the world.

In Kenya, only 100 High net worth individuals (HNWI) are registered with
the tax authority, though there is likely to be a further 40,000 HNWI, evading tax1.

These shocking figures demonstrate the state of extreme inequality in Kenya in terms of raising tax revenue, a growing trend which unfortunately hampers social development, security, economic activity and prosperity.

The country is hard-pressed on meeting revenue targets to deal with the current budget deficit of Kshs 356 billion, and the result has been the raising of taxes on basic commodities with the heaviest tax burden being borne by the poor.

It’s clear that inequality in Kenya is advancing not only because the rich have
been getting richer, but also because the poor have been getting poorer.

Additionally, inequality in taxation goes against our constitution that entrenches a value system recognizing equality as one of its guiding principles for state policy, legislations and citizen’s own behavior and attitude towards each other.

We thus call for your immediate action to address tax inequality in Kenya through investigating the distributional consequences of indirect taxes such as VAT and ensuring that any reforms which increase rates, change exemptions, or bring in new taxes are fully analyzed for their impact on the tax burden borne by poor people.

Prioritizing an increase in social spending as a key part of fiscal reforms and making a clear link between tax reforms and revenue-raising strategies and the public budget allocations.

Tax Justice Network Africa and Christian Aid report, Africa Rising? the essential role of fair taxation February 2014

Undertaking reforms of direct taxes (Basic Corporate Income Tax (CIT) Rate, Personal income taxes (PIT), property taxes and other wealth taxes, such as capital gains taxes), so as to increase tax revenues in an equitable manner.

End harmful Tax Incentives- in Kenya, the government has recently estimated revenue losses from all tax exemptions and incentives at US$1.1 billion a year; this would amount to around 3.1% of GDP2.

These exemptions include; reductions from the standard rate for taxes such as import duties and waivers on value added tax (VAT), land for lease, and duty-free imports to global investors.

Of these, trade related tax incentives were at least US$133 million in 2007/08 and may have been as high as US$566.9 million.

Currently, there are around 42 different EPZs in Kenya, employing around 30,000 people.

These provide businesses with a 10-year corporate income tax holiday followed by a 25% corporate tax rate (compared to the standard 30%) for the next ten years, a ten-year exemption from withholding taxes, and an exemption from import duties and VAT on machinery, raw materials and inputs 3.

Such tax incentives only encourage revenue losses for our governments and in any case, are not necessary to attract foreigndirect investments (FDIs).

Removing these tax exemptions would free up more revenue to fund public
spending and service delivery in areas such as; health, education and infrastructure.

We ask that you the members of the Kenyan legislative assembly and executive cooperate with regard to ending harmful tax incentives and Abolishing discretionary tax incentives (i.e. those given to individual companies or organizations), as
well as discretionary powers vested in individual government officials that enable the granting of such incentives.

Any tax incentives granted must be in accordance with national legislation,
should be based on transparent criteria including adequate environmental, social and economic cost/benefit analyses, and should only exist in the context of a clear policy framework and development objectives.

Mechanisms should be put in place for annual tax expenditure reviews as part of the annual budget process.

In addition to including cost/ benefit analyses, the reviews should include information on the duration of, and beneficiaries of the incentives.

Information from the reviews should be made public and parliament should play an oversight role in the process.

“As civil society representatives and citizen networks, based on the above considerations, we urge you, the legislators and executive of Kenya to take immediate steps in addressing long term issues of regressive taxation and inequality in the country while advocating for progressive tax reforms and good governance.”

Signed on behalf of Civil Society representatives and Citizen Networks in Kenya:

The East African Tax and Governance Network (EATGN) – Network of over 16 member
organizations, geared towards establishing a vibrant tax justice movement across the Eastern Africa region that mobilizes citizen participation in influencing policy and practice, for a just and equitable society".


Tax Strategies, Taxation, Taxes, Taxpayers Money

Meet the author

author avatar EVANS KANINI
Kenyan journalist writing on issues of education, health, environment, agriculture, water, democracy, human rights and governance.

Share this page

moderator Steve Kinsman moderated this page.
If you have any complaints about this content, please let us know


author avatar WOGIAM
20th May 2014 (#)

This is a big problem which is prevelant in African countries and our politicians and top administrators do this for their own personal benefits. They are the HNWI.

Reply to this comment

author avatar EVANS KANINI
20th May 2014 (#)

I thought so, too, thanks.

Reply to this comment

Add a comment
Can't login?