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Kenya widens tax net to fund $24.9b budget

Saturday February 17 2018
tax

Online foreign currency speculators, international money transfer dealers, informal businesses and multinationals have been roped into the Kenyan tax net. FOTOSEARCH

By JAMES ANYANZWA

Online foreign currency speculators, international money transfer dealers, informal businesses and multinationals have been roped into the tax net as Kenya seeks new cash streams to finance an expanded budget of Ksh2.49 trillion ($24.9 billion) in the 2018/2019 fiscal year.

The National Treasury says this is an attempt to reverse revenue losses that have seen collections fall from 18.1 per cent of GDP to 17.1 per cent.

“We are looking at foreign transactions such as online businesses, and money transfers and online forex traders and that they could be part of that,” National Treasury’s director general of budget Dr Geoffrey Mwau told The EastAfrican.

“We also want to try and stop revenue losses through transfer pricing by multinationals.”

Last year, Kenya gazetted regulations to control online forex trading businesses, some of which now require brokers to submit to the Capital Markets Authority their volume of transactions every month or within any period prescribed by the authority.

Kenya’s online foreign exchange traders participate in the global currency market through foreign registered brokers who provide the connection to clearing centres in Europe, US and Asia. Kenya has an estimated 50,000 people in this business comprising of brokers, dealers and money managers.

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Some multinationals operating in the country have been accused of manipulating their books to declare reduced profits in order to pay less or no tax at all through transfer pricing. They shift costs between items and move taxable profits to other jurisdictions to avoid paying corporate taxes within their countries of operation.

An audit of the accounts of multinational companies revealed that the country lost Ksh35 billion ($350 million) in three years through tax evasion.

“We aim to prevent this malpractice and minimise revenue losses,” Dr Mwau said.

Revenue collection for the six months to December 31, 2017, fell below target by Ksh44.8 billion ($4.48 billion).

The Parliamentary Budget Office (PBO) says the high expenditure is largely due to mega infrastructure projects as well as increased spending on the operations of an expanded government.

“Over time, given the increased spending amid revenue shortfalls, an increasing share of revenue is being used to fund recurrent expenditure pressures with development expenditure mostly being funded through borrowing,” the PBO warned.

Currently, Kenya’s expenditure needs are more than the country’s domestic revenue capacity, thereby necessitating borrowing as well as transfer of some costs to the private sector through public-private partnerships.

While development spending has increased by 25 per cent over the past decade, recurrent spending has increased by 15 per cent.

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