{"id":442056,"date":"2011-06-16T04:40:11","date_gmt":"2011-06-16T04:40:11","guid":{"rendered":"http:\/\/www.ghanamma.net\/2011\/06\/16\/budget-opens-avenue-for-firms-to-lobby-for-tax-law-reforms\/"},"modified":"2011-06-16T04:40:11","modified_gmt":"2011-06-16T04:40:11","slug":"budget-opens-avenue-for-firms-to-lobby-for-tax-law-reforms","status":"publish","type":"post","link":"https:\/\/www.ghanamma.com\/2011\/06\/16\/budget-opens-avenue-for-firms-to-lobby-for-tax-law-reforms\/","title":{"rendered":"Budget Opens Avenue for Firms to Lobby for Tax Law Reforms"},"content":{"rendered":"
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Business Daily<\/a> (Nairobi)<\/p>\n

George Omondi<\/p>\n

16 June 2011<\/p>\n

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The 2011\/12 Budget has opened a fresh avenue for firms that sell goods and services to foreign entities through electronic platforms to lobby for removal of existing inconsistencies in tax laws, experts say.<\/p>\n

Finance minister Uhuru Kenyatta’s speech did not propose any changes to the VAT legislation, sending a ray of hope across the business landscape that the government intends to keep its promise of reviewing it this year.<\/p>\n

Local business executives have been lobbying for changes to address the question of refunds and clear some of the defects that they said add more costs to their operations.<\/p>\n

To emerging sectors of the economy, clearing existing ambiguities in the VAT legislation will compel the government to classify firms engaged in e-commerce and business process outsourcing (BPOs) as “services for export” which attract no tax liability, analysts at Ernst & Young said.<\/p>\n

The VAT legislation originally zero-rated services rendered in the country on behalf of foreign interests. The Kenya Revenue Authority (KRA) has lately been relying on amendments introduced three years ago to demand taxes on the ground that such contracts are exclusively performed in Kenya even if consumers are based outside the national borders<\/p>\n

“This confusion in the VAT law has effectively brought local BPOs, e-commerce and advertising agencies under the ambit of value taxes and KRA justified in making its demands,” said Mr John Gikima, an associate tax director at Ernst & Young.<\/p>\n

In his Budget speech delivered last week, however, Mr Kenyatta left the VAT Act intact, pending review by a task force that is expected to draft the new VAT bill to be submitted for approval by Cabinet later this year. The task force is expected to release the draft VAT bill for public scrutiny by the end of August 2011, providing opportunities for players to push for removal of all grey areas of old law that has exposed them to tax liability.<\/p>\n

“We have pointed out on several occasions how this defect in the VAT Act has affected relationship between foreign firms and local BPOs, e-commerce and advertising agencies and we feel this is the best opportunity to resolve it,” said Mr Geoffrey Karuu, the regional leader in charge of core business services at Ernst & Young. In the proposed changes, tax experts are seeking to compel KRA to recognise all the services that are performed locally on behalf of foreign interests among the country’s zero-rated export services.<\/p>\n

Tax liability<\/strong><\/p>\n

A reduced tax liability is expected to attract more investments in the country’s emerging BPO sector, boosting the government’s Vision 2030 campaign to make the country a top off-shoring destination for Africa. The local BPO sector currently accounts for less than 0.01 per cent of the country’s GDP, and has about 500 seats and 1,000 employees. According to the Annual Progress Report on Vision 2030 released last month by the government, the country’s BPO sector has continued to grow in scope, creating a total of 619 direct jobs and 4,168 in direct in 2010.<\/p>\n

Dismal rate<\/strong><\/p>\n

This dismal rate of job creation which is only 8.4 per cent of the target for the period has been blamed on high cost of operation, forcing the government to come up with a draft BPO incentive Policy to lure more players.<\/p>\n

The country has since signed a public private partnership agreement to pave way for the establishment of a state-of the art ICT Park – one of the flagship projects for the sector.<\/p>\n

“Removing this defect is a good starting point because 80 per cent of our business is for export,” said Mr Munjal Shah, the managing director at Techno Brain ltd, a local BPO firm.<\/p>\n

The sector was expected to lay 5,000 kilometres of terrestrial fibre optic cables and develop five ICT policies but failed.<\/p>\n

“But the main reason why BPOs are suffering in this country is lack of a proper legal framework to guide operations and the government needs to seize this opportunity to address this as well,” said Mr Shah<\/p>\n

The sector is expected to create 20,000 direct jobs and increase its annual contribution to GDP by 10 billion by end of next year, helped by the project at the Athi Rivers Export Processing Zone.<\/p>\n

<\/p>\n

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\nBudget Opens Avenue for Firms to Lobby for Tax Law Reforms<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Business Daily (Nairobi) George Omondi 16 June 2011 The 2011\/12 Budget has opened a fresh avenue for firms that sell goods and services to foreign entities through electronic platforms to lobby for removal of existing inconsistencies in tax laws, experts say. Finance minister Uhuru Kenyatta’s speech did not propose any changes to the VAT legislation, sending a ray of hope across the business landscape that the government intends to keep its promise of reviewing it this year. Local business executives have been lobbying for changes to address the question of refunds and clear some of the defects that they said add more costs to their operations<\/p>\n","protected":false},"author":0,"featured_media":442053,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[],"class_list":{"0":"post-442056","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-local-news"},"yoast_head":"\nBudget Opens Avenue for Firms to Lobby for Tax Law Reforms - Ghanamma.com<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ghanamma.com\/2011\/06\/16\/budget-opens-avenue-for-firms-to-lobby-for-tax-law-reforms\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Budget Opens Avenue for Firms to Lobby for Tax Law Reforms - Ghanamma.com\" \/>\n<meta name=\"twitter:description\" content=\"Business Daily (Nairobi) George Omondi 16 June 2011 The 2011\/12 Budget has opened a fresh avenue for firms that sell goods and services to foreign entities through electronic platforms to lobby for removal of existing inconsistencies in tax laws, experts say. 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