How govt gave up Sh259.5 billion in revenue - Treasury report

The government sacrificed revenue worth Sh259.5 billion in 2021

NAIROBI, NAIROBI COUNTY, KENYA - 2020/06/11: Kenyas National Treasury and Planning Cabinet Secretary, Ukur Yatani with the budget briefcase before leaving to Parliament for budget reading 2020/2021. (Photo by Billy Mutai/SOPA Images/LightRocket via Getty Images)

The government sacrificed revenue worth Sh259.5 billion in 2021 as tax exemptions to encourage private companies and investors as well as reduce the cost of basic commodities.

According to the 2022 Tax Expenditure Report released by Treasury, the figure dropped from the previous year when the government chose to forgo Sh302.3 billion in taxes.

This represented 2.15% of Kenya’s gross domestic product.

Tax expenditure is one of the avenues that the state uses to support development, where instead of collecting tax the government opts to forego the tax revenue.

Domestic Value Added Tax accounted for most of the total revenue forgone at Sh211 billion, followed by VAT on imports including an 8% reduction of VAT on fuel amounting to Sh28 billion.

The government exempted personal income tax for residents and non-residents worth Sh1.2 billion.

A section of Kenyans who benefited from the exemption of the Sh1.2 personal income tax included persons living with disability, those qualified for insurance reliefs and those with mortgages.

In terms of businesses, firms were saved from paying taxes worth Sh5.86 billion.

Companies in Kenya are required to pay corporate income tax at 30% for Kenyan incorporated entities, and 37.5% for international companies operating in the county.

Kenyan companies enjoyed the Sh5.86 billion tax expenditure to encourage companies to invest in productive fixed assets.

The National Treasury concluded that the total tax expenditure has been on a declining trend from 2017 to 2021.

To ensure sustainability and value for money from the resources foregone through tax expenditure, the Government will continue to upscale efforts to rationalize and harmonize the tax expenditures to remove redundant tax expenditures and enhance those intended to promote investments,” the report recommended.

In addition, Treasury noted the need to have an elaborate framework for monitoring and evaluating the impact of tax expenditure on the economy.

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