The 6th Annual Tax Summit that took place on the 4th and 5th of November, 2020, sought to advance conversations based on the four strategic goals that guide its 7th Strategic Plan by driving public and international participation in discussions geared towards providing solutions for enhancing and supporting KRA’s role in Tax and Customs Administration. The said goals include:
- Enhanced Revenue through Tax Compliance,
- Improved business climate and competitiveness,
- Enhanced operational efficiency,
- Building Public Trust through the integrity, professionalism and service orientation of staff.
The Tax Summit, 2020 brought together global experts, tax practitioners, academia, private sector players, and senior government officials. Among them were the Secretary-General, United Nations Conference on Trade and Development (UNCTAD), Dr. Mukhisa Kituyi; Director, Centre for Tax Policy and Administration at Organization of Economic Cooperation and Development (OECD), Mr Pascal Saint-Amans; Executive Secretary, Inter-American Center of Tax Administrations, Mr Márcio Verdi; and Executive Secretary, African Tax Administration Forum (ATAF), Mr Logan Wort among others. The meeting was also graced by Members of Cabinet namely: Cabinet Secretary National Treasury and Planning, Hon. Amb. Ukur Yatani, Cabinet Secretary Information and Communication Technology, Mr. Joe Mucheru, and Cabinet Secretary Ministry of Industry, Trade and Cooperatives Ms. Betty Maina.
Participants were drawn from over twenty African Countries.
The theme of the event was ‘ENHANCING TAX ADMINISTATION FOR ECONOMIC SUSTAINABILITY’.
This theme was expounded through discussions around the following thematic areas:
- Innovative approaches to sustain economies in the Covid 19 era – the next normal
- Digitalization and revenue mobilization in developing economies
- Navigating Covid 19 – insights for sustained revenue collection and service delivery
This year the summit was aimed at providing a platform to progress dialogue on strategic and innovative ideas to facilitate the goals of the Big 4 agenda for win – win solutions and actionable insights to deliver on the key targets.
The specific objectives of the summit included the following:
- Develop new areas of partnerships in achieving the big 4 pillars
- Develop innovative insights to deal with environmental bottle necks e.g. illicit trade
- Generation of new knowledge and insights on tax and customs administration
- Strategic input in fostering a facilitative tax environment for economic growth
- Monitoring and evaluating results of the tax summit since inception
Expected outcomes from the forum included:
- New strategic partnerships
- Policy proposals on measures to be applied to support growth in achieving the Big 4 Agenda
- Suggestions on how to tackle issues on the threat of revenue mobilisation efforts
- Structured framework of implementation of the actionable insights
- Innovative solutions to improve efficiency and effectiveness in Revenue administration.
In his opening remarks the Cabinet Secretary for National Treasury and Planning Hon. (Amb.) Ukur Yatani noted that the theme of the Summit was very timely the outbreak and spread of the Covid-19 Pandemic and the ensuing containment measures have devastated global economies including Kenya. The Pandemic has not only disrupted our livelihoods but to a greater extent affected productivity in all sectors of the Kenyan economy leading to a contraction of 5.7 percent in the second quarter of 2020 (April-June).
To cushion the country and its citizens from the negative impact of the Pandemic, the Government implemented several measures including exempting from PAYE persons earning Ksh 24,000 and below; reducing corporate and personal income tax rate from 30 % to 25 %; reducing the VAT rate from 16 % to 14 % and reducing turnover tax rate from 3 % to 1 %. Overall, these measures are estimated to have cost the exchequer Ksh 172.0 billion in revenue foregone by the Government in one financial year.
Whereas revenue performance in the current financial year (2020/2021) is still unknown, it is expected to significantly reduce having already experience a deficit of Ksh 5.2 billion in the first quarter with May being the worst hit month having suffered a 33.8 percent decline.
The situation is similar to other countries such as South Africa which participants were informed had suffered a decline of 18 percent compared to last year with corporate tax declining by 22 percent and VAT by 6.7 percent. On the contrary, Nigeria had positive results having exceeded performance by 2 percent which was not expected given the pandemic.
Based on the foregoing, the forum noted that innovative measures were needed to ensure continuity of implementation of targeted programmes that will foster economic growth and development. In view of this, the Government of Kenya, similar to revenue authority representatives from Nigeria and South Africa noted the need to focus on new frontiers to bridge the gap.
In this regard, Kenya has developed policy and legislative frameworks to expand the tax base to tax the digital economy. This is premised on the estimated value of the same having grown at an average of 10.8 percent annually over the last five years with its output totaling to Ksh 427.0 billion in 2019, contributing to almost 15.5% of total GDP according to the 2019 Digital Economy Report released by UNCTAD. Further it has been projected that if developed and nurtured the country’s digital economy the overall economy can reap an additional USD 16 million annually.
Among the frameworks in place is the digital service tax which was passed in the Finance Act of 2019 which provides for taxation of supplies made through a digital market place. Additionally, a mechanism for non-residents to account for VAT on supplies made in Kenya through a digital marketplace has been provided for in the VAT (Digital Market Place Supply) Regulation 2020. In this respect, effective 1st January, 2021, Kenya shall implement Digital Service Tax (DST) payable at 1.5 percent of the gross transaction value of income derived or accrued in Kenya from services offered through a digital market place.
Whereas concerns were raised on whether the new tax measures such as DST may make Kenya an unfavourable foreign investor destination it was noted that the digital market place has offered an avenue for broadening the tax base. Many companies and business have shifted their focus on doing their transactions online. Therefore, with the shift in pandemic-initiated innovation tax authorities are tasked with the responsibility of exploring all avenues to boost revenue collection facilitate and coordinate revenue collection from the digital space.
|COMMUNIQUE: The Summit held: THAT the role of Domestic Revenue Mobilization in the transformation of sovereign nations cannot be overemphasized. Tax does not only finance public expenditure but also promotes equity in participation in economic development which is in line with the theme of this year’s Summit of “Enhancing Tax Administration for Economic Sustainability”. THAT the Summit comes at a time when economies globally are exploring innovative approaches of revenue mobilization in the wake of challenges posed by the Covid-19 pandemic which continue to undermine the capacity of economies to sustain revenue mobilization and at the same time mobilize resources required to mitigate the impact of the pandemic on the businesses and the population in general. THAT KRA, like any other modern tax administration, is optimizing the use of technology to enhance tax revenue collection. KRA’s iTax is providing the Authority with advanced capabilities of identifying promptly, taxpayers who are not declaring and paying taxes. The Integrated Customs Management System (iCMS), will enhance KRA’s risk management capability for customs processes hence significantly improving the collection of customs revenue. It will not be possible for anyone to declare customs values that are not consistent with information available in the KRA database for similar items or transactions.THAT KRA has changed tact in approaching tax administration. The Authority has gradually dropped the enforcement approach and adopted the facilitation of taxpayers’ approach as part of its operating strategy. KRA has adopted stakeholder engagement as a key pillar in its business processes to build strong relationships for trust, which is vital for voluntary tax compliance. KRA is witnessing positive outcomes with the facilitation approach bearing fruits, not only in enhancing good relationships with taxpayers but also in providing new ideas and innovations useful for improving the tax environment. THAT KRA’s Alternative Dispute Resolution (ADR) mechanisms have now matured and continue to enjoy increased use of the framework by taxpayers with commendable results. This further demonstrates growing trust by taxpayers that the Revenue Administration is willing to engage and resolve disputes outside the lengthy and costly court processes. Tulipe Ushuru, Tujitegemee!THAT this Summit comes at an opportune time when the Government is considering appropriate policies that will facilitate efficient and sustainable mobilization of the much-needed revenue. This include: a. A review of tax expenditures and incentives to minimize revenue loss. These incentives include preferential rates of tax, enhanced investment deductions, tax reliefs, zero-rating for VAT purposes, remission of taxes and exemptions. The effect of these has been a year on year increase in tax expenditure, which constrains revenue mobilization. It is estimated that Kenya’s tax expenditure amounted to Ksh 535.9 billion in 2018 or 6.0% of GDP. Of this, VAT accounted for 69.2%, followed by corporate income tax at 15.7% and Customs exemptions and remissions accounting for 13.9%. Certainly, Kenya’s tax expenditure to GDP of 6% compares unfavourably with about 1.4% in Mauritius. It is therefore fundamental that as a country, we reconsider tax policies that provide for such expenditures to ensure sustained revenue mobilization. b. Government is currently considering the taxation framework for the digital economy. In recent years, the digital economy has gained significant prominence within the global economy as a driver of innovation and competitiveness, becoming a subject of wide policy debates globally. With this, businesses are changing their models to take advantage of the opportunities presented by the new operating ecosystem, and tax administration processes and policies equally must align. In this regard, Kenya is implementing digital services tax having passed the Finance Act, 2019, which provides for taxation of supplies made through a digital market place.|
|COMMUNIQUE: A mechanism for non-residents to account for VAT on supplies made in Kenya through a digital marketplace has been provided for in the VAT (Digital Market Place Supply) Regulation 2020. c. Effective 1st January 2021, Kenya shall implement Digital Service Tax (DST) payable at 1.5% of the gross transaction value of income derived or accrued in Kenya from services offered through a digital market place. The legislative process that led to these provisions was consultative and included inputs from key players in the industry. This taxation of the digital economy will not only expand the tax base but will also ensure equity in the taxation system. d. The Government is also looking into ways of improving the competitiveness of the business environment. A good business environment boosts the growth of industries, while a weak one can stifle productivity and profitability of businesses. The government shall continue working to streamline fiscal policies with particular attention to tax and customs policies to promote industrialization, encouraging local investments and enhance revenue collection. 7. The value of digitalisation lies in the ability of organisations, such as the KRA, to take advantage of internal optimisation and cost-savings brought about by digitisation, to change their entire business models and service delivery processes, which include stakeholder and consumer engagements. Tulipe Ushuru, Tujitegemee! THAT Domestic Resource Mobilisation (DRM) anchored on digitalisation will lead Kenya towards the well-desired path of sustainable and self-funded development. Increased DRM is 100% dependent on the digitisation of processes and records across government and the digitalisation of processes. THAT the impacts of digitalisation within the KRA are noticeable. The tax base has more than doubled with total taxes collected increasing at a rate of approximately 10% year on year, thus boosting revenue collection and the country’s economic growth. THAT to guide the collective way forward in the digital economy, five pillars for growth have been identified by the Government; a. Digital Government – The presence and use of digital services and platforms to enable public service delivery. The completion of the National Optic Fibre Backbone Infrastructure (NOFBI) which aims to enhance universal access to affordable ICTs countrywide; b. Digital Business – development of a robust marketplace for digital trade, digital financial services and digital content; c. Infrastructure – the availability of affordable, accessible resilient and reliable infrastructure; d. Innovation-Driven Entrepreneurship – the presence of an ecosystem that supports homegrown firms to generate world-class products and services which help to widen and deepen digital economic transformation; and e. Digital Skills and Values – the development of a digitally skilled workforce that is grounded on sound ethical practices and socio-cultural values. The government has integrated youth in the development programs to tap into their innovative and creative energies. 11. THAT elaborate plans are being made to bring all the youth-targeted programs under a single contact (one stop-shop) to facilitate youth involvement and empowerment in development programs and to support job creation and expansion opportunities.|
|COMMUNIQUE: 12. THAT even as Kenya prepares to venture into taxation of this new area, it is important that KRA ensure that start-up businesses are not stifled but instead are supported to grow. KRA has continuously supported small businesses to ensure that they comply with their tax obligations. KRA will walk with small businesses by facilitating them to do their business as they comply with the tax regulations. 13. THAT some participants expressed concern on the impact of Digital Service Tax that is due for implementation in January 2021. While others made the suggestions to have tax incentives to the Informal Sector and SMEs, especially the start-up e-commerce companies so as not to stifle businesses. 14. THAT KRA committed to continue to interacting with taxpayer to know their challenges and we shall continue to focus on service delivery. Among other initiatives, KRA will continue fast-tracking refunds, encourage use of ADR to resolve tax disputes and adopt an open door policy to the taxpayers. 15. THAT Kenya aims to have a robust, diversified, and competitive Manufacturing Sector which will transform it into a high middle-income economy by 2030. The Manufacturing Sector, under the Big Four Agenda, is one key driver for economic growth and development to facilitate employment creation, generate foreign exchange, attract investments, and create wealth. 16. THAT one key issue to be negotiated with the US is Digital Trade, which will give Kenya an opportunity in the manufacturing of Information Technology (IT) related equipment. According to UNCTAD, many African countries, including Kenya, have not yet made much progress on digital trade, which has, in turn, led to the loss of revenue for developing countries. 17. THAT on digitalization and revenue mobilization in developing economies, a few countries in Africa have advanced as quickly in the use of mobile-based financial services and digital transformation as Kenya. The Ministry is crafting negotiations by looking at sensitive sectors and sensitive products that would be given preferential treatment. Successful conclusion and implementation of the FTA will certainly lay a strong foundation for Kenya’s future economic and social transformation.|