Revise income tax threshold
Aug 14, 2008
MEMBERS of Parliament are proposing an increase in the threshold on personal income tax to sh235,000 from the current sh130,000. Income tax on personal income - Pay As You Earn (PAYE), is charged on the sum of workers’ income left after the threshold figure is subtracted.
MEMBERS of Parliament are proposing an increase in the threshold on personal income tax to sh235,000 from the current sh130,000. Income tax on personal income - Pay As You Earn (PAYE), is charged on the sum of workers’ income left after the threshold figure is subtracted.
So if your salary is sh150,000, the taxable proportion of your income is sh20,000.
By raising the threshold, not only will everybody pay less income tax but the lowest income earners will not pay tax.
The current threshold was set more than 10 years ago. Since then, the cost of living has risen much faster than the general increase in income levels.
An adjustment to the threshold level is a reasonable demand and hard to argue against.
The finance ministry is resisting the proposal arguing that by raising the threshold to sh235,000, the treasury will be forced to forgo sh87b. They are saying in effect that we should suffer lower standard of living year on year because they are unable to widen the tax base.
But this argument suggests that the tax savings will be stashed away under our mattresses. The truth is the savings will either be consumed, saved or invested generating more economic activity and greater scope for taxation. This will have the much desired effect of widening the tax base, hopefully leading to a further lowering of the burden on companies and workers in the formal sector.
The finance ministry, however, finds it more convenient to tax employees than to strengthen its capacity to collect VAT - the tax levied on goods and services.
As has been shown with scrapping of the road licence fees, the Government needs to be creative in how it collects taxes. We cannot collect taxes the way the developed economies do.
We cannot continue to subsidise the finance ministry’s inability to widen the tax base. MPs should press ahead with their demands for an increase in the income tax threshold.
So if your salary is sh150,000, the taxable proportion of your income is sh20,000.
By raising the threshold, not only will everybody pay less income tax but the lowest income earners will not pay tax.
The current threshold was set more than 10 years ago. Since then, the cost of living has risen much faster than the general increase in income levels.
An adjustment to the threshold level is a reasonable demand and hard to argue against.
The finance ministry is resisting the proposal arguing that by raising the threshold to sh235,000, the treasury will be forced to forgo sh87b. They are saying in effect that we should suffer lower standard of living year on year because they are unable to widen the tax base.
But this argument suggests that the tax savings will be stashed away under our mattresses. The truth is the savings will either be consumed, saved or invested generating more economic activity and greater scope for taxation. This will have the much desired effect of widening the tax base, hopefully leading to a further lowering of the burden on companies and workers in the formal sector.
The finance ministry, however, finds it more convenient to tax employees than to strengthen its capacity to collect VAT - the tax levied on goods and services.
As has been shown with scrapping of the road licence fees, the Government needs to be creative in how it collects taxes. We cannot collect taxes the way the developed economies do.
We cannot continue to subsidise the finance ministry’s inability to widen the tax base. MPs should press ahead with their demands for an increase in the income tax threshold.