Enough about the Constitution, let's turn to the budget that was or, perhaps, never was. We are now in the midst of the 21 day period that the Speaker of the House set for public input. What surprises me is that, as of Friday last week, no guidelines had been given as to how this process is supposed to work. Nevertheless, I intend to submit my thoughts on the proposals announced on 8 June. Overall the tax measures were a mixed bag of innovative to the down right impractical.
To me the introduction of the tax free status for Real Estate Investment Trusts albeit from 1 January 2012 was extremely innovative and forward thinking although it remains to be seen what the detailed guidelines will contain. Of course what concerns me is who will actually benefit from this wonderful idea - let's hope it doesn't result in a major scam! By the way, I was asked the other day whether a development of 2 houses on a small plot of land could be set up as a REIT. Well I suppose we will have to wait for the guidelines but I can't see this being possible.
On the other extreme the various measures introduced for personal tax. Great in theory but in practice........
The abolition of the requirement for the employed class to file returns if their only income is taxed under PAYE, was great to hear - after all it means less red tape. But how is to work and given our propensity to evade tax, isn't it likely that a number of people will do just that? It seems the onus is back on the KRA to find and catch the evaders and with a system that is already under strain, one wonders how practical it is.
Similarly, the measure to prevent the use of the Personal Relief (that princely sum of Kshs 1,162 per month) more than once is a great idea but who is responsible for enforcing it and who will be responsible if misused - the first employer, subsequent employers or the employee. It really seems minimal thought went into it. May I suggest some guidelines from KRA or we will all be like the proverbial dog trying to catch it's tail! I understand Rwanda has a scheme for nominating the Principal Employer and in this day and age of info sharing, why not talk to them?
Which conveniently brings me on to the information exchange agreements. Those of you with cross border transactions with related parties, be prepared. - all the revenue authorities are going to be talking about you and it is unlikely to be all good. And even if you don't fall into this category of taxpayer, you will be caught under this sharing arrangement if you have other sources of income cross border so beware!
Then my biggest bug bear - the doubling of WHT on professional fees from 5% to 10%. One of those shock and awe moments for me at least! My, and other suppliers of management and professional fees, cash flow is going to take a severe hit. Add to this the continuing saga of withholding VAT and I must say this measure is entirely counter-productive. It's not going to work I'm afraid.
No reduction in tax rates once again, indeed not since 2005, leaves the taxpayer worse off given inflation. Why this fear of reducing tax rates I am not sure but we have historic evidence of what they can do to collections. I hope the Budgetary Committee takes note of this and pushes for it before Finance Bill 2011 becomes an Act.