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Medium-term revenue plan paves the way for engaging policymakers
The planned tax reforms are aimed at achieving an ordinary revenue to GDP ratio of 25 percent by 2030 and promoting investment across various sectors by removing market distortions.
The government laid out its tax policy direction for the next three years in the medium-term revenue strategy (MTRS).
It provides both tax policy and administrative reforms that are aimed at increasing ordinary revenue collection. This is set to ensure that the ratio of ordinary revenue to GDP grows by five percent of GDP in the strategy period.
The planned tax reforms are aimed at achieving an ordinary revenue to GDP ratio of 25 percent by 2030 and promoting investment across various sectors by removing market distortions.
The major drivers of the MTRS are improvements in efficiency of tax administration, expansion of the tax base, promotion of equity and fairness in the tax regime.
This is the first time the government is operating under an MTRS that has been shared with the public. Certainty is a key canon of taxation, which stipulates that taxes should be certain and not arbitrary.
The MTRS provides taxpayers and other economic actors an opportunity to interrogate the tax policy direction and share their concerns where need be.
Frequent tax changes have been a thorn in the flesh of many taxpayers who have aired their concerns on the unpredictable nature of the country’s tax policy environment.
While this may not change in the near future the tax policy changes enumerated in the MTRS provide a good guide for businesses for planning purposes. Investors should also be able to take into account the expected tax policy changes in the medium term and thus incorporate their impact in their business model.
The MTRS has indicated that the challenges contributing to the sub-optimal tax revenue collections include increase in tax expenditure and low tax compliance.
The government also attributes the performance to growth of the informal and digital sectors which are deemed hard to tax. The Treasury asserts that coherent reforms across all tax heads are required to foster increased as well as equitable revenue mobilisation.
The proposed tax policy changes are said to be aligned with other government objectives such as ease of doing business and trade policies.
Notable strategic interventions that are expected in the review period include a reduction in the corporate income tax rate from 30 percent to 25 percent, reintroduction of minimum tax, review and rationalisation of exemptions on entities and review of residential rental income tax.
The MTRS provides a good starting point for businesses and the public to engage the government on the expected tax policy measures where they have concerns on the likely impact of the policy changes.
The government, for its part, should consider having timely, regular, independent and candid reviews of the hits and misses of the MTRS as envisaged in the National Tax Policy to inform necessary policy remediations or adjustments.
The writer is an Associate Director at Ernest & Young LLP (EY)
