Ease of doing business in Kenya still bad, cost of compliance rises

Saturday March 16 2013

It is indeed becoming expensive to be a taxpayer in Kenya and the ease of doing business is not improving. Photo/FILE

It is indeed becoming expensive to be a taxpayer in Kenya and the ease of doing business is not improving. Photo/FILE 

By Nikhil Hira

While we may be moving into a new era on the political front, the ease of doing business in Kenya doesn’t seem to be following suit. 

Indeed, it appears to be becoming more difficult while the cost of compliance is rising. 

The Kenyan taxpayer is rapidly becoming a full time unpaid collection agent for the government — and that just adds to the difficulty of doing business. 

The new government needs to bear this in mind. If we want Kenya to be a favoured destination (and it perhaps already is) we need to make it easier to set up and operate here.

April 27, 2012 was a momentous day for tax professionals and indeed for taxpayers. After considerable delays, elements of extortion and payoffs (a soap opera if there ever was one), the Finance Bill 2011 finally became the Finance Act 2012. 

The enactment process was four months late and with that delay came an intervening period of uncertainty. Unfortunately, the same thing happened to Finance Bill 2012, which was finally published on February 1. 

One can only hope this is not the beginning of an unwanted trend. When it was finally published it was horrifying to see something in it for the first time — the requirement that all ETR machines (and other variations of it) would have to be made GPRS-enabled. 

The good news — we seem to be moving firmly into a technological world — and the bad news, the amendment became effective May 2 and the Bill became an Act four days before!  But fear not, already savaged taxpayer, the KRA didn’t seem ready for this yet and, nothing much has changed a year later. 

The point, however, is not that the measure was included because in the long run it will probably help catch tax evaders.  The point is that once again the cost of being compliant will increase as we all will have to buy new devices to replace the existing ones which are not GPRS compliant. 

This, and the recent measures affecting the extractive industry and financial institutions, got me thinking about how difficult and expensive it is be compliant in the Kenya of today. 

If one looks at an average business which has employees, buys professional services, is VAT registered and perhaps imports goods, one will appreciate this. 

This average company will make in excess of 65 payments to the revenue authority a year even if you exclude their imports, advance tax on vehicles, single business permit and other special licences.  It is indeed becoming expensive to be a taxpayer in Kenya and the ease of doing business is not improving.

We are a country that is keen to encourage foreign direct investment provided it adds to our economy with jobs, technical transfer of knowledge and other such nice things. 

But if we persist in making it difficult for investors to do business here, will they come?  Do you know that it takes almost three months to incorporate a company here and yet Rwanda does it in 48 hours?

Our current infrastructure is significantly wanting and this simply adds to the cost of doing business.  It seems to me that we need to change our priorities if we want to encourage in-bound and indeed local investment.

The new government must also look at its policy making.  Introducing new taxes without giving thought to the practicality of enforcing them is clearly not getting us anywhere. 

In the latest Finance Act, we have two such instances — the extractive industry withholding tax and excise duty on financial institution charges. 

Neither of these has been thought through and indeed in the case of banks, a temporary stay order has been issued. You understand that with government expenditure rising, the need for new sources of revenue is important.  But please, let’s think it through before introduction!

With the abundance of unexploited natural resources, we have the potential of being the destination of choice and we must strive to get there. 

There is a lot to be done and we hope that one key focus will be looking at the cost of doing business in Kenya.

Nikhil Hira is the tax partner, Deloitte East Africa. The views expressed here are the writer’s own and not necessarily those of the firm.