The World Bank is pushing for new income tax rates for Kenya. In a new report that is proposing new tax bands, Kenyans earning over Sh800,000 per month should pay 38 percent income tax. At the same time, the World Bank has recommended a reduction in the rate of income tax to be paid by Kenyans earning below Sh166,677. This reduction will be filled up by the higher taxation that will be charged on top earners.
“An alternative tax rule with revised structure can reduce the burden on low-income earners while maintaining revenue neutrality by slightly increasing the effective rate for the top decile,” the World states in a report.
Additionally, according to a report that appeared in a local business newspaper on Wednesday, the World Bank is also seeking the establishment of six tax bands that will replace the current five tax bands in a move that will also remove the current 30 percent tax rate.
The Kenya Revenue Authority (KRA) quantifies income tax as a form of tax that is charged for each year of income, upon all the income of a person whether resident or non-resident, which is accrued in or was derived from Kenya.
The World Bank in its list of recommendations wants Kenyans who earn between Sh24,000 and Sh32,333 to pay tax at a rate of 15 percent down from the current 25 percent. It also wants those earning between Sh32,334 and Sh166,667 to pay taxes at a rate of 25 percent from the current 30 percent.
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Those earning between 166,668 and Sh500,000 shall pay 32.5 percent from the current 30 percent if the recommendations go through while for those earning between Sh500,000 and Sh800,000, the global financial lender wants a tax rate of 35 percent from the current 32.5 percent.
The global lender says the new recommendations follow an analysis from which the global lender has found that Kenyans who earn less carry a heavier tax burden as a percentage of total wages.
“What we find is that there is a distortion in the labour market, especially for the low-income earners where the tax band is relatively high compared to higher income earners,” Marek Hanusch who is the Lead Economist at the World Bank in Kenya said.
“When you adjust the overall income tax in a way that becomes progressive, you would increase the incentive to formalize, which gives you additional revenues.”
