Tax Exemptions May Cost Kenya as Much as $900 Million a Year

(Bloomberg) -- Kenya may have lost as much as 270 billion shillings ($2.7 billion) in tax over the last three years because of legislation that allows exemptions, according to the revenue authority.

A study into withholding taxes and value-added tax showed “85 billion to 90 billion shillings annually that could have been included in the tax net,” Kenya Revenue Authority Commissioner General John Njiraini said in an interview. “We need a conversation about what proportion of our economy is within the tax net and what kind of policies should we pursue so that there is consistent tax buoyancy.”

Kenya unveiled new VAT legislation in 2013 that reduced the number of exempt and zero-rated products. Since then, the government has rolled back some of the changes. It’s also introduced an exemption of donor-funded projects, such as the country’s $5.3 billion standard-gauge railway, from VAT.

Exemptions on corporate income taxes and VAT lead to revenue leakages of almost 5 percent of GDP, the World Bank said last week.

“We need to go back to the normal system, where all transactions pass through the tax net and if you have certain social motivations, then you deal with them on the expenditure side,” Njiraini said.

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