Tax administration systems are being discussed all over the world like never before. Governments such as Kenya’s need tax revenues to fund several flagship infrastructure projects and plug the widening public sector deficits. This situation puts governments in a predicament because they do take cognizance of the fact that the competitiveness of their economies hinge on their ability to attract investment as this is considerably influenced by the tax regimes employed.
This indicator measures the Total Tax Rate, the time per year it takes to prepare, file and pay three major types of taxes and contributions: the corporate income tax, value added tax, and labor taxes, including payroll taxes and social contributions, and the number of tax payments. This indicator as at 2015 measured the reforms that took place in the calendar year 2013. Easing the administrative burden of paying taxes by businesses is a priority area for the government. Hence, the need for Kenya Revenue Authority (KRA) to continuously work towards streamlining administrative processes and modernize tax payment systems cannot be overstated.
The table below shows a comparative ranking in selected countries:
|Rank||Payments (number per year)||Time (hours per year)||Profit tax (%)||Labor tax and contributions (%)||Other taxes (%)||Total tax rate (% profit)|
Source: Doing Business 2015: Going Beyond Efficiency
Key Reforms made to date:
- KRA has made improvements to the i-tax system. The system allows Taxpayers to pay their taxes on–line via a payment gateway looping over 25 banks in Kenya. The introduction of this online system for VAT which is now used widely by the private sector has enabled the private sector file their VAT returns online reducing the administrative burden of paying VAT. This has reduced the time required to comply with VAT. KRA recently introduced the online system for payment of Corporate Tax which is slowly being picked up by the private sector. Filing and paying taxes brings with it innumerable advantages if implemented well and used by most taxpayers. Both firms and tax authorities benefit. Electronic filing generally improves the administrative burden of tax compliance by lightening the work load, saving time, reducing operational costs such as for processing, handling and storing tax returns. Most importantly, studies have shown that countries that have adopted e-filing methods have registered an increase in compliance with tax obligations. These improvements to the i-Tax system have led to reduced filing periods of PAYE and VAT to 67 and 72 minutes.
- Effective April 2015, all VAT & PAYE returns are to be filed online. Similarly, tax payers are now able to file for refunds for VAT and Corporate Income Tax online eliminating the burden of having to make manual copies of documents to be submitted. Consolidation and streamlining of payment of taxes (PAYE, NSSF rates and NHIF fees) through KRA. Companies are now making one declaration and single payment for PAYE and NSSF deductions per month. This reform will continue to ease compliance and generally reduce the administrative burden by businesses when paying taxes.
- Effective 1st April 2015 and published in the Kenya Gazette dated 8th May 2015, the National Treasury Cabinet Secretary appointed the Chairperson and 19 members to the Tax Appeals Tribunal as provided by in the Tax Appeals Tribunal Act, 2013. This Tribunal known as the Tax Appeals Tribunal is to hear appeals filed against any tax decision made by the Commissioner of Taxes. The formation of this tribunal will allow for a faster resolution of past and present appeal cases.
- While the Paying Taxes indicator measures that taxes and statutory contributions a company must pay in its second year of operation there are some areas around other tax procedures & payments that have seen some reform. One area is the designation of collectors of stamp duty. Even though this is not measured by this indicator, designating the State Law Office as a collector of stamp duty and permitting the Ministry of Lands to have online access to information on the status of payments due by or received from the taxpayers will impact the time taken to receive approvals for property transfers and business registration.
- KRA has adopted the use of Mobile Phone Money payments of small amounts of taxes via Airtel Money and M-Pesa. For Airtel money KRA Unstructured Supplementary Service Data (USSD) code is *572#. For MPESA taxpayers may use “Lipa na M-pesa” to access the service. KRA Pay Bill Number is 572572. Enabling tax payments via the mobile phone is laudable and will serve to improve the administrative environment around the area of paying taxes.