Kenya is among the top three countries in Africa where individuals pay more taxes than profit taxes from corporations, a new report has found.
The report by Paris based Organisation for Economic Cooperation and Development (OECD) shows that Kenya comes third after South Africa and Swaziland.
OECD compared revenue data from 16 African countries to identify the trends and challenges in the continent’s government revenue collection from 2000-2015.
In Kenya, income tax from individuals account for 26.6 percent of the country’s tax revenue while businesses pay 11.8 percent.
South Africans are the most taxed in the continent, with personal income tax accounting for 33.4 percent compared to corporations which contribute 16.4 percent while in Swaziland personal income tax stands at 28.7 percent.
The report shows that Kenya taxations on individuals as a percentage of tax revenue is higher than the average for OECD countries which stands at 24 as well as the average for African countries at 16.3 percent.
In terms of taxation structure, Kenya had the third higest contribution of its tax revenue from income tax and corporate taxes at 47.1 percent behind the leader South Africa at 51.8 percent.
Kenya was also found to have on most sluggish growth in tax as the gross domestic product (GDP).
With a tax to GDP ratio of 18.4 percent in 2015, the country was found to have the third lowest growth at 2 percent points in the last 15 years in the 16 countries sampled just standing ahead of Uganda and Mauritius.
Togo and DRC had the highest change over the same period at 10.5 and 10.2 percentage points.
In 2015, Kenya’s tax to GDP ratio dropped by 0.6 percent.
“Between 2014 and 2015, the Africa (16) average tax-to-GDP ratio also increased by 0.4 percentage points, slightly less than the LAC average (0.6 percentage points) and more than the OECD average (less than 0.1 percentage points). All countries but Kenya, Tunisia and Morocco had increases in their tax-to-GDP ratio over this period,” says the report titled Revenue Statistics in Africa: 1990-2015.
Kenya’s low tax to GDP ratio was blamed on the economy’s dependence on agriculture. In the reports comparison, Kenya had the third highest contribution to the GDP from Agriculture at 33 percent behind Togo’s 42 percent, Niger’s 41 percent and Rwanda’s 35 percent.
“Most countries with higher shares of agriculture in their economies display lower tax-to GDP ratios. Cameroon, Côte d’Ivoire, the Democratic Republic of the Congo, Ghana, Kenya, Niger, Rwanda and Uganda have share of agriculture as percentage of GDP above 20% and a tax-to-GDP ratio below 19 percent. Togo is a notable exception: over 40 percentof its economy is devoted to agriculture and Togo’s tax-to-GDP ratio is relatively high (21.3 percent),” says the report.
The report points out the fact that taxing agriculture was difficult for African governments.
One of the reasons that the report cites is the fact that most people in the sector in are on low incomes and many are not registered for tax purposes.
It also notes that there is less taxation of the agricultural sector in Africa due to a high level of informality and a low level of monetisation.
“Payments are often made in cash or in kind by African farmers as opposed to through banks and almost none of them keep good business accounts,” says the report.
Further the report notes that agriculture sector benefits from numerous tax exemptions.
“For example, in Rwanda, agricultural enterprises are exempt from paying VAT on agricultural inputs and products,” notes the report.
Lastly, there are the VAT exemptions for the agriculture sector in the continent which reduce tax revenues.