February 26th 2018

Business / Economy

Experts call for clarity in Tax Procedure Act

Experts have called on the government to clarity inconsistent areas of Tax Procedure Act 2015 to make the law more efficient in raising awareness and compliance by taxpayers.

By Jack Otwalanewsdesk@kenyafreepress.comTuesday, 07 Jun 2016 08:48 EAT

Experts have called on the government to clarify inconsistent areas of Tax Procedure Act 2015 to make the law more efficient in raising awareness and compliance by taxpayers.

Speaking during a pre-budget Session, Atul Shah, chief executive officer, PKF Eastern Africa, said although the Act was aimed at unifying procedures across three tax legislations, the withholding Value Added Tax (WHVAT) and appointment of agents were deleted from the VAT Act 2013 which leaves a gray area that should be addressed.

“The Tax Procedure Act sought to consolidate provisions relating to the tax administration contained in the current tax legislations, but the provisions relating to administration of withholding Value Added Tax (WHVAT) and appointment of agents were deleted from the VAT Act, 2013 have not be addressed,” Shah said.

He urged the Finance Cabinet Secretary Henry Rotich to table a new income tax Bill in Parliament for debate which will see an overhaul of the Current Income Tax Act which was enacted in 1974.

Shah said the Act has some drafting errors, which need to be corrected so as to serve effectively. He said the Income Tax, which was being used was introduced in 1974 and needs to be replaced because many things have changed since its launch.

Shah said there is need for the Government to amend certain contentious income tax provisions as thin capitalization – which is outdated and has lost ground to a new concept where companies with cross-border dealings are now governed under a more robust and acceptable regime of transfer pricing.

“There is urgent need to review the tax provisions that impose tax on interest paid on both foreign and local loans borrowed by foreign controlled companies whose loans exceed their equity,” he said.

He said the impact of the provisions is to discourage foreign investments while the government is on a road show to attract foreign investors and foreign capital. “The mischief that was meant to be cured by thin capitalization provisions in the olden days has now been replaced by transfer pricing tax laws,” he said.

PKF wants the thin capitalization law scrapped as it is outdated. Regarding the capital gains tax, Shah said following the re-introduction of capital gains tax, there is need to issue regulations to reflect the current economic realities and ease the administration of this tax.

The PKF boss wants Kenya Revenue Authority (KRA) to consider extending tax amnesty especially considering that many changes have taken place in tax administration since the last tax amnesty in 2004.

“We propose that the government offers a 6 month period of amnesty to taxpayers who have not paid their taxes to come forward and volunteer to pay tax arrears in exchange for waiver of penalties and interest,” he said.

Michael Wambugu, PKF partner, urged the Government to consider linking the online platform and the manual system to avoid duplication e.g. instances where KRA requests for copies of documents which have been filed on iTax.

Wambugu lauded the use of the Integrated Financial Management Information System (IFMIS) saying it facilitates constant monitoring of all transactions during the procurement process which in the long run promotes transparency and accountability in utilizing of public funds.

However, we cannot overlook adverse effects of corruption in various agencies of Government. In this regard, we propose the following mechanisms:

He said tackling unemployment was important to every Government across the world adding that nearly 1 million people enter into Kenya’s job market annually.

Shah said special projects initiated in the past the past like Uwezo Fund, agribusiness and women fund. “In order to achieve the one million jobs, we propose the Government to increase budget allocation to these programmes and play a regulatory role to ensure the funds are utilized as expected,” he said.     

He called on the Government to provide the Auditor General’s office more funds to enable them handle the growing needs for audits especially in counties – which are becoming  corruption havens.

“We propose that the Government considers outsourcing some of the auditor general’s functions to the private sector and also the introduction of value for money audits for public sector,” Wambugu said.

The audits he said will be geared at examining the economy, efficiency and effectiveness with which the audited body has discharged its functions. This will also help in weeding out corruption in government.

Jack is a business and society writer at the Kenya Free Press

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