Property transfer tax falls on low corporate deals

Shortfall in tax receipts from profit and proceeds from property transfers by companies, co-operatives and trusts widened further in the year ended June, 2019, reflecting reduced deals in corporate Kenya.

Provisional statistics tabled in the National Assembly by the Treasury show tax collections on company earnings were flat, growing 0.71 percent to Sh292.03 billion. The collections underperformed the Treasury goal of Sh388.94 billion target by Sh96.91 billion, preliminary data in the latest Quarterly Economic and Budgetary Review report indicates.

The shortfall in corporate income tax receipts to Kenya Revenue Authority (KRA) was higher than Sh75.07 billion posted in the previous year ended June 2018 when the taxman collected Sh289.96 billion against a target of Sh365.03 billion.

Business leaders have cited reduced flow of credit as a result of September 2016 legal ceilings on interest rates, growing backlogs at Inland Container Depot (ICD) in Nairobi which raise operating costs as well as delayed payments by state entities for constraining corporate deals.

KRA disclosed early September only 33,426, or 8.3 percent, of the 401,306 firms which registered for corporation tax paid, pointing to high levels of non-compliance. Some 168,428 or 42 percent of the firms filed returns, signaling they were active, but 80.15 percent of these did not pay the taxman a shilling by end of June.

Corporation tax, levied at standard 30 percent of earnings for firms incorporated in Kenya and 37.5 percent for foreign ones, forms the bulk of revenue the government derives from companies. “It is clear that tax compliance is intrinsically linked to revenue performance. However, tax compliance levels are strongly influenced by taxpayers’ perceptions of prudent tax utilisation by the government,” Stephen Waweru, a senior manager for tax services at consultancy and audit firm KPMG said via email.

“The government should consider reducing the corporation tax rate and rely more on indirect taxes (consumption taxes) to enhance revenue mobilisation by broadening the tax base especially to capture the elusive informal sector.”