World Bank Calls for More East African Tax Reforms
The World Bank report has recommended further reforms to the tax systems in East Africa to ease the business process for investors.
The bank in its 'Doing Business in the East African Community in 2012' suggested lower taxes and simpler administration processes in the region. According to the World Bank report, businesses in Kenya are the most heavily taxed in EAC, with up to 49.6 per cent of the profits going to tax. In Rwanda tax takes 31.3 per cent of the profits, Uganda 35.7 per cent, Tanzania 45.5 per cent while Burundi government demands 46.2 per cent of the gains. This could turn- off investors from the region as studies have shown that higher tax rates are associated with fewer formal businesses and lower private investment.
For instance, the bank said, A 10 per cent point increase in the effective corporate income tax rate is associated with a reduction in the ratio of investment to gross domestic product (GDP) of up to two per cent points and a decrease in the business entry rate of about one percentage point. "Keeping tax rates at a reasonable level can encourage the development of the private sector and the formalization of businesses. This is particularly important for small and medium-size enterprises, which contribute to growth and job creation but do not add significantly to tax revenue, " states the report.The number of payments also could discourage investors as too much time is wasted in the system.
Kenya has 41 different types of payments that have to be made annually. Tanzania is however worse with 46 payments but Rwanda , Burundi and Uganda have been doing better with 18,24,32 payments respectively. "The number of payments indicates the frequency with which the company has to file and pay different types of taxes and contributions," said the study.
While it takes 393 hours to comply with the tax payments in Kenya, it takes only 148 hours in Rwanda. The EAC ranks 106th globally on the paying taxes indicator,falling behind the Southern African Development Community (SADC)at 91st and the Common Market for Eastern and Southern Africa (COMESA) at 90th. In 2008, Kenya committed to lowering the burden of tax compliance Uganda on companies with the implementation of electronic filing for VAT through the Kenya Revenue Authority's online portal. However, VAT payments still require visiting a bank office, minimizing the efficiency of e-filing.