Kenyatta University Career Office Kenya’s design of income tax especially personal income tax takes the graduated tax rate schedule which means that higher tax rates and in turn tax burden are applied to those people with higher income levels. Literature shows that the design of Kenya tax policy uses income taxes redistribution purposes. This has been achieved through a structure combining income brackets with marginal tax rates., For example, in the period before tax reforms were initiated (before 1983), Kenya personal income tax schedule had eight income tax brackets and high marginal tax rates, with the lowest being about 10% and the highest being 65%. However, the post-reforms period witnessed the rationalization of income tax brackets and marginal tax rates by widening (reducing the number of brackets) and lowering the marginal tax rate from 65% to the current 30% rate. The current marginal tax rate of 30% for tax band of over Ksh. 38,892 per month is a low progressivity tax system.. It seems unfair to charge someone earning over Ksh. 1,000,000 per month at the same rates of 30% marginal tax rate with someone earning Ksh. 38,892. Therefore for improved and true progressivity the top marginal tax needs to be reviewed and increased upwards. Furthermore, review of income tax bands should be accompanied by adjusting them for inflation. Supposing that one had a salary of Ksh. 10,164 implying that they fall within the first income bracket Ksh 0-10,164 per month taxed at a rate of 10% in PAYE graduated tax structure. Assuming that over time their salary grows at the same rate as the prevailing rate of inflation, means that the person may find themselves paying income tax at a higher rate because the rise in salary may push them partly or fully into the second bracket of Ksh. 10,164 -19,740 to pay tax at a rate of 15% or even to the third bracket, giving an illusion that they are richer and hence paying at a higher rate yet in real terms they are not. This whole phenomenon is referred to as “bracket creep” and is often addressed by indexing or adjusting tax brackets for inflation so that if salaries rise at the same rate as inflation, then the person still pays their income tax at the same marginal tax rate, which is the level of tax threshold that reduces the tax burdens of the poor. The second instrument that governments use to achieve equity and fairness in income tax is through personal income tax credits and deductions. In Kenya, for every registered income taxpayer, their income notwithstanding is provided with a tax relief. Currently the annual level of relief is Ksh. 13,944, a unification of both the single tax and the married (family) relief into one. With regard to corporations, corporate income taxes (CIT) were lowered from 45% in 1989/90 period to the current 30% in order to compete favourably with other countries for investment funds. Secondly, CIT rates were lowered to make it equal to the top marginal personal income tax rate (30%) for purposes of horizontal equity Kenyatta University Career Office Kenyatta University through the Centre for Career Development and Placement (CCDP) carries out the function s to the bette
Posted on: Tue, 29 Oct 2013 06:24:08 +0000
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