KRA advised to increase tax on flour, basic commodities to meet revenue shortfall

International Monetary Fund (IMF) is now pushing the treasury to increase taxes on basic commodities in a bid to grow the tax mans’ collection and prevent external borrowing.

IMF says that the 16 percent value added tax that the government has scrapped on ‘sensitive’ goods such as bread, cooking gas, maize and wheat flour has significantly contributed to collection shortfalls prompting more borrowing.

It is estimated that KRA loses collecting more than Sh 478 billion from commodities that have been exempted from taxation, losing more than the collection shortfall of Sh 300 billion

“The KRA cites tax expenditures as a major impediment to its ability to meet revenue targets, with tax expenditures estimated at Sh478 billion in 2017 against a shortfall in budgeted collections of about Sh300 billion,” the IMF said.

The World Bank undertook a study in 2017 which provided estimates of some tax loopholes that revealed Kenya loses 1.8 percent of GDP on corporate income tax and 3.1 percent on VAT.