The National Treasury is set to review the list of products currently enjoying tax waivers as a new report shows that taxpayers paid KES 316 billion on behalf of players in the financial, transport, manufacturing and communication sectors in 2021.
The government zero-rates or exempts products from paying some taxes to cushion consumers from high prices or to incentivise investment in a sector
This review could result in previously tax-exempt products being taxed, affecting a wide range of traders. The Treasury has stated that it will keep “rationalizing and harmonizing” tax expenses to ensure they offer the best value for money.
“To ensure sustainability and value for money from the resources foregone through tax expenditure, the government will continue to upscale efforts to rationalise and harmonise the tax expenditure with the aim of removing redundant tax expenditure and enhancing those intended to promote investments and for social protection,” Treasury Cabinet Secretary Njuguna Ndung’u as quoted by Nation.
The proposed move comes as the 2022 tax expenditure report showed that while the financial and insurance, information and communication, and manufacturing enjoyed the highest tax exemptions by the government in 2020 and 2021, the transport and energy sectors were also largely zero-rated.
Howver, according to the report, between 2017 and 2021, the government reduced the rate of waivers, with tax foregone reduced from KES 357.8 billion to KES 316 billion.
“In 2020, total tax expenditure amounted to KES 267.1 billion compared to KES 357.8 billion in 2017, KES 356.5 billion in 2018, and KES 299.5 billion in 2019. However, in 2021, it was KES 316 billion which translates to an increase of KES 48.9 billion from 2020,” the tax expenditure report stated.
It further shows that in the five years to 2021, Value Added Tax (VAT) on products consumed in the country enjoyed the highest rates of tax expenditure (zero-rating and tax exemptions) of between KES 172 billion and KES 272 billion annually.