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IMF Looks For Further Increase In Kenyan Tax Revenues

by Lorys Charalambous,, Cyprus

13 December 2013

After the final review under its three-year Extended Credit Facility to Kenya, which was originally approved in January 2011, the International Monetary Fund (IMF) confirmed that the country's policies will continue to aim at gradual further fiscal consolidation, while providing sufficient resources for infrastructure investment.

It noted that buoyant tax collections and accelerating credit growth to the private sector point to strong domestic activity with economic growth of up to 6 percent next year. However, fiscal discipline is being maintained despite spending pressures, and the 2013/14 fiscal year's revised budget targets a primary fiscal deficit lower than 2 percent of gross domestic product (GDP).

The IMF pointed, in fact, to a number of tax measures introduced in the current fiscal year that have strengthened tax collection and raised the potential for additional revenue mobilization in the future.

Those measures include the implementation of a new value added tax (VAT) law that will improve administrative efficiency by simplifying procedures, and also measures to enforce tax collection from sectors showing lower compliance and amendments to the legislation to broaden the tax base.

In addition, the Kenya Revenue Authority (KRA) has intensified the auditing of large taxpayers, with the Large Taxpayers' Office having collected the equivalent of an additional 2 percent of GDP in the first quarter of the 2013/14 fiscal year, while the coverage of excise taxes has been broadened to include financial transaction and mobile-phone transfers and customs services have been streamlined.

A user-friendly integrated tax management system, which was implemented in October 2013, and which is being complemented by the remote transmission of Electronic Tax Register data this month, is also enhancing information management, while the KRA has adopted a new strategy to enforce compliance in declaring real estate-related income, including rental income, and a number of legislative amendments will improve excise, VAT and income tax administration.

Overall, the IMF concluded that Kenya's medium-term fiscal plans "appear sufficiently ambitious, but still within reach," and it was encouraged that "these plans do not incorporate the impact of revenue stemming from the recent discovery of commercially viable oil and mineral wealth."

TAGS: compliance | tax | economics | value added tax (VAT) | tax compliance | fiscal policy | law | gross domestic product (GDP) | excise duty | tax authority | legislation | Kenya | Tax

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