November 4 & 5th, 2020
Kenya Revenue Authority (KRA) in Partnership with African Tax Administration Forum (ATAF) held the 6th Annual Tax Summit on 4th and 5th November 2020. This year, the Summit was hosted virtually with key international speakers including: 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. Participants were drawn from over twenty African Countries.
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.
- 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 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.
- 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. 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.
- 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.
- 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.
- 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.
- 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;
- 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;
- DigitalBusiness – development of a robust marketplace for digital trade, digital financial services and digital content;
- Infrastructure– the availability of affordable, accessible resilient and reliable infrastructure;
- 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
- 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.
- 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.
- THAT even as Kenya prepares to venture into taxation of this new area, it is important that KRA ensure that start-up business 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.
- 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.
- 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.
- 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.
- 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.
- 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.
The Summit was graced by three Kenyan Cabinet Secretaries including: 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.