Kenya: minimum tax decision eases Treasury pledge to IMF

Kenyan taxpayers are not yet out of the woods, even after the minimum tax was declared unconstitutional.

The Treasury had pledged to the International Monetary Fund (IMF) to find other ways to fill the revenue hole created by an unfavorable court ruling, such as Monday’s judgment which declared the minimum tax null and void .

According to national budget estimates, the Kenya Revenue Authority (KRA) was to levy a minimum tax of 21 billion shillings this year.

The High Court, however, issued stay orders suspending its implementation on April 20, before dropping it entirely on Monday.

“The authorities have committed in the last discussions with them to take compensatory measures in the event that the minimum tax yield is significantly reduced and this really reflects the level of the authorities’ commitment to meet their tax revenue targets,” said the IMF chief of mission. Kenya’s Mary Goodman told the Nation in an interview.

The Treasury did not respond to our questions regarding the offsetting revenue measures it plans to pursue in accordance with its commitment to the IMF.

Loss-making companies

The minimum tax would have seen businesses pay a one percent tax on sales, whether the business is profitable or loss-making.

Judge George Odunga ruled that the tax was unfair to loss-making companies, despite its noble intention to catch tax evaders who report losses year after year.

The government’s commitment follows the conclusion of the first review of the current 258 billion shillings ($ 2.34 billion) loan program with the IMF, following which the Treasury asked the IMF to change the target. indicative of tax collection. The indicative tax revenue target has been set at a floor of 996.2 billion shillings for March 2021 and 1.4 trillion shillings for June 2021, the end of the fiscal year.

“Based on the results achieved up to April of the previous fiscal year, the program target for tax revenue has been reduced slightly. full force of the pandemic were somewhat uncertain, ”Ms. Goodman said.

IMF program

The IMF also gave the Kenyan government a break on the structural benchmark that required it to establish a common wage bill. While building on the IMF program, the government has committed to implementing in all ministries, departments, agencies, semi-autonomous agencies and counties a common payroll system that would be linked to the Integrated Information System. on financial management (IFMIS) by the end of June 2021.

“Kenya’s request for the program objective of implementing a common payroll system linked to IFMIS has been accepted. The initial benchmark was to issue a decision between MDAs (ministries, departments and agencies), counties and SAGASs (semi-autonomous agencies). This has been changed to focus on MDAs and counties. The target date for this reform remains the same and we will discuss the status of this important reform in the next scheduled mission, ”Ms. Goodman said.

The push for a common payroll system is designed to help manage Kenya’s inflated wage bill and close income drain loopholes. According to the Wages and Compensation Commission, Kenya’s public sector wage bill stands at 827 billion shillings, swallowing up 51 shillings out of every 100 shillings collected in ordinary income.

The IMF says the change in the common payroll benchmark was informed by the recognition that solving problems in the public sector payroll system is much more complex than previously envisioned and would take a considerable time. The Treasury also did not respond to questions on the progress of the establishment of a common payroll system.