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Businesses need a predictable tax regime, not annual tax shocks.[Courtesy]
The macro-environment for businesses operating in Kenya is often characterised by a chaotic fiscal cycle and systemic flaws that force them to endure uncertainty. This exemplifies an unknown reality. The National Fiscal Plan is being treated as a plan for the next planting season, where the tax framework is sown, uprooted, and re-sown annually.
Businesses optimistically revise their forecasts every July, the start of a new national financial year in Kenya. Annually, in February, the National Treasury (Treasury) releases a Budget Policy Statement (BPS) that promises a stable annual plan for Kenya’s economy. However, every June, when the annual Finance Bill is tabled in the National Assembly, businesses are left completely in the dark, despite elaborate public participation forums. Upon enactment, the Finance Act acts like a wrecking ball to those promises in the BPS, because some tax law amendments, such as shifting essential commodities from zero-rated to VAT-exempt, trigger cash flow strain and escalate production costs. The policy whiplash, however, continues throughout the fiscal year. In August this year, the Kenya Revenue Authority (KRA) increased the customs benchmark on consolidated cargo from Sh2.5 million to Sh3.2 million. This sparked protests by traders across Nairobi, and it took the President’s intervention to issue an Executive Order lowering the rate to Sh2 million.
