Paying Taxes 2009: New Report finds that Kenya stands to benefit from Simpler Business Tax Systems

Nairobi December 4th , 2008— Tax authorities worldwide are overhauling tax systems
by reducing taxes, streamlining administrative processes and modernising payment
systems according to Paying Taxes 2009, the third report in an annual series, published
by the World Bank, IFC and PricewaterhouseCoopers . The report is expected to prompt
further dialogue between governments and businesses on improving tax systems.

The report draws on the Doing Business 2009 report that measures the ease of paying
taxes for mid-size domestic companies in 181 economies, analysis tax systems and tracks
related reform efforts. It includes examples of how 18 economies have made use of data
from the previous global Doing Business reports and provides insight into discussions
with governments and other stakeholders generated by earlier Paying Taxes reports.

The Kenyan ranking for ease of paying taxes dropped from 154 out of 178 economies in
the precious year to 158 out of a total of 181 economies. Some of the reasons for this
perceived decline is the tremendous improvements made by some other the global
economies. This, coupled with, a tax system riddled with multiple tax payments each
month, slow tax refunds and a tax net that is not wide enough means that Kenya has
further work to do to improve their ranking.

A key recommendation made in the report is the establishment by government of a single
authority for most taxes, which Kenya has already implemented but which does not
handle all tax collections. The Kenya revenue authority has improved over time and
become more professional. More improvements are expected with the coming launch of
an Integrated Tax Management System.

According to the report, areas where the Kenya government can make significant changes
are in revamping existing revenue legislation, lowering rates, and actively considering the
introduction of environmental taxes to influence behaviour.

Paying taxes 2009 finds that 2007/8:
• The most popular reforms globally were reducing corporate income tax rates (in
21 economies) and improving electronic filing and payments systems efficiency
• On average, corporate income tax accounts for only 13 percent of tax payments,
26 percent of compliance time, and 37 percent of the total tax rate (tax cost to the
case study company).
• Employment taxes account for 34 percent of the total tax rate, taking into account
only amounts borne by the employer. Employment taxes are particularly prevalent
in the European Union and account for 65 percent of the total tax rate for the case
study company in the region.
• On average, 36 percent of the overall time to comply with tax systems and 48
percent of the number of tax payments are spent on consumption taxes.

Rajesh Shah, Tax Partner, PricewaterhouseCoopers said, “The task of developing
conducive investments environments is expected to become even more challenging in
these difficult times of global financial turmoil and economic slowdown with increasing
pressures on tax authorities to raise revenues needed to finance public spending priorities
in infrastructure, education, health, energy and other areas which are also important for
economic growth and social integration.”

“Corporate income tax reform has had a positive impact for government and business in a
number of economies, yet these benefits could be multiplied if tax reform is looked at in
its entirety. Tax reform should include all business taxes - not just corporate income tax.
It should include all administrative aspects and the relationships between government and
business generally. These are all fundamental to effective tax systems.” Added Rajesh

According to Nikhil Hira, Tax Director PricewaterhouseCoopers, “The general trend
around the globe has been for economies to ease the complexity of their tax systems, both
from the administrative and legislative perspective, which has moved several of them up
the ranking. Over the last 4 years there has been as average reduction in corporate
income tax of 3% which has reduced time to comply by as much as 5%.”