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Kenyans tops list of most taxed citizens in Africa

Zachary Ochuodho @zachuodho

Kenya is among top three countries in Africa where individuals pay more taxes than profit taxes from corporations, a report by Organisation for Economic Co-operation and Development (OECD) says. The report by the Paris-based organisation titled “Secretary General’s Report to Ministers 2018”, shows Kenya comes third after South Africa and Swaziland.

Income tax from individuals in Kenya accounts for 26.6 per cent of the total tax revenue, while businesses tax accounts for 11.8 per cent. Kenya Revenue Authority (KRA) describes income tax as the value of benefit or facility provided by employer, where the total value exceeds Sh1,000 per month.

It is also defined as gains or profits from employment or services rendered which are payable in money and the value of housing provided by an employer ascertained under section 5(3) of the Income Act.

The Act also defines it as the amount of the pension in excess of Sh150,000 per year but does not include gains or profits to in the case of a resident individual, which in the opinion of the Commissioner, are in respect of casual employment.

South Africans are the most taxed on the continent, with personal income tax accounting for 33.4 per cent compared to corporations which contribute 16.4 per cent while in Swaziland personal income tax stands at 28.7 per cent.

Institute of Certified Public Accountants of Kenya (ICPAK) says in a recent study that tax revenue in Kenya increased from Sh651 billion in 2010/2011 to Sh1.1 trillion in 2014/2015 largely due to increases in income tax – equivalent to 69 per cent rise in the collection.

Naomi Rono, ICPAK’s Public Policy and Governance Department said unlike other countries in Africa, income tax is the largest source of government revenue in Kenya. She said several countries in Africa such as Angola, Nigeria, South Africa rely on commodities to generate revenue. “Taxation could be a means to hedge against the risks associated with reliance on commodities,” she added.

Rono said the number of registered taxpayers as at 2015 was 1.6 million but has since risen with up to 3.2 million filing their tax return by the end of June 30, 2018 deadline, which, however, by any comparison is still very small in an economy of 40 million.

Interestingly, despite Kenyans paying more taxes than citizens in most countries in Africa, the tax burden on the few employed people or those having an income still continue – making them to keep bearing the burden every time budget is raised as National Treasury seeks funds.

National Treasury more often than not has been advised to widen the tax bracket to encompass everyone who gets an income instead of leaving it to only a few individuals employed and companies to shoulder the burden.

Peter Kinyua, a civil servant, for instance, earns Sh50,000 per month. According to tax experts, Kinyua who does not have any other work has some tax obligations to make. The first thing the government does with Kinyua’s salary, as usual, is to deduct the income tax – known as Pay as You Earn (PAYE) – then deduct statutory deductions like National Social Security (NSSF) and National Hospital Insurance Fund (NHIF).  

According to the Income Tax computations, Kinyua is expected to remit 30 per cent of the gross income, which comes to Sh15,000.

This leaves him with only Sh35,000 which is further subjected to statutory deductions: NSSF, Sh200, NHIF (New) 1,400 and (pension + medical) in old age, which is optional at Sh2,500, totalling to Sh4,100.

This leaves him with only Sh30,900 as the net income. But given that he still has some issues such as paying house rent, electricity, transport to work, food, water, taking children to school and other issues such as clothes, the least  he can remain with is Sh3,000.

Interestingly, even his rent, electricity, transport, water and school fees also attract taxes. Kinyua hardly goes home with Sh1,500, which if he has a Sacco loan to service, virtually leaves him with nothing to save. Kinyua is not alone as this is the scenario most Kenyans face.

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