Pension funds administrator CPF Financial Services has proposed that all multiple domestic taxes be scrapped and replaced by a single charge payable at the point of spending, arguing that this would triple annual revenue collection.
CPF says multiple taxes such as pay-as-you-earn, excise tax, value-added tax, withholding tax, levies, duty and county taxes should be removed and replaced with a single tax known as pay-as-you-spend (Pays) and set at a maximum 16 per cent.
In a single tax system such as proposed by CPF, there would be only one major tax, usually a comprehensive income tax, instead of several taxes, such as income tax, capital gains tax, and national insurance, as in the UK. Arguments in favour of such taxes are that they would be less avoidable and ease administration.
CPF Group managing director, Hosea Kili said simulations showed that consolidating all domestic taxes into Pays would help level the ground and expand the tax base as well as lift revenue collection to at least Sh6.25 trillion from the current Sh2.02 trillion.
“Introduce a new transaction tax based on consumption of goods and services, meaning citizens will pay as they spend. Then link the transaction tax with social protection benefits, meaning tax plus a benefit,” he said in the presentation to the National Dialogue Committee.
CPF proposed that Pays be levied as a final tax on all transactions for goods, services, and works for all citizens, excluding basic goods to avoid regression and lack of equity between the rich and poor.
CPF simulation shows applying the Pays alongside other current wealth taxes such as capital gains tax and ‘sin’ taxes will be enough to triple tax collections.
The proposal comes at a time when the National Treasury is proposing a barrage of taxes across all sectors of the economy and scrapping many of the current tax incentives such as personal relief, insurance relief, and other tax waivers offered to corporations.
The Treasury in its newly published medium-term revenue strategy plans to review the current taxes in what it describes as “comprehensive and coordinated reforms across all tax heads for greater and equitable revenue mobilisation.”
CPF wants the single tax model to include a national consolidated social protection fund as a fund to which both government and citizens will contribute. Funds under this single pool will be universal national health insurance fund, education, pension, sacco, and social security.
“The impact and benefits of these proposals include improved savings culture, money available for government development expenditure, and elimination of old-age poverty,” says Mr Kili.
