Kenyan tax evasion crackdown sees billions of shillings recovered
In 2016 the Kenyan Parliament capped interest rates at 4 percent above the Central Bank’s benchmark amid concern about high rates in an effort to help small traders affordably access capital. At the time the interest rate controls were considered to be among the most drastic ever imposed by a government, now the conversation is about potential plans to repeal. To discuss this and other business headlines coming out of the country, Journalist, Joseph Bonyo joins CNBC Africa for more.
Thu, 22 Aug 2019 10:13:07 GMT
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AI Generated Summary
- Interest rate caps introduced to make credit accessible have not achieved desired outcomes, leading to discussions about repeal or revision.
- Government crackdown on tax evasion targets companies evading billions in taxes, raising questions about tax compliance and integrity.
- Challenges in the banking sector include adapting to regulatory changes, ensuring financial stability, and promoting transparency and trust in the financial system.
Kenya has seen significant financial reforms in recent years, particularly with the introduction of interest rate caps to make credit more affordable for small traders. However, the implementation of these caps has not yielded the expected results, leading to discussions about potential repeal. In a recent interview with CNBC Africa, journalist Joseph Bonyo delved into the history and current status of these regulations. Initially, the interest rate caps were introduced to curb the high profits Kenyan banks were making by charging exorbitant interest rates. The caps restricted banks from charging more than 4% above the Central Bank rate, aiming to make credit more accessible. However, instead of promoting financial inclusion, banks began limiting credit access to low-risk individuals and corporations, excluding many small and medium enterprises (SMEs) and individuals. This led to a call for the repeal of the caps or potential revisions to allow banks more flexibility in lending. If the regulations are not repealed or revised, more people are likely to be locked out of the credit market, exacerbating financial exclusion for many Kenyans. Commercial banks may continue to prioritize high-profit ventures over lending to individuals and SMEs. In response to pressure from the International Monetary Fund (IMF) and other stakeholders, discussions are underway to find a middle ground that ensures both profitability for banks and affordable credit for borrowers. The government's crackdown on tax evasion is another major development in Kenya's financial landscape. Recent cases involving major companies evading billions in taxes have brought the issue to the forefront. Africa Spirits and other beverage companies have been accused of bypassing tax systems and underpaying taxes for years. As the Kenya Revenue Authority (KRA) intensifies efforts to recover lost revenues, the crackdown has sparked debates about the thin line between tax avoidance and evasion. While tax avoidance is legal and can be addressed within the law, evasion is considered a criminal offense. The KRA's focus on tax evaders is seen as a signal of their commitment to enforcing tax compliance and recouping lost revenues. However, questions have been raised about the integrity of the tax collection system and the potential collusion between companies and tax authorities. The KRA's renewed efforts to hold both companies and individuals accountable for tax evasion reflect a broader push for transparency and accountability in Kenya's financial sector. In light of these developments, the banking sector faces challenges in adapting to regulatory changes and ensuring financial stability. While the sector is resilient, structural realignments and increased transparency are needed to address issues of corruption, tax evasion, and credit access. The Kenya Bank Association has launched initiatives to educate the public and enhance trust in the banking system. As Kenya navigates these complex financial reforms, collaboration between the government, financial institutions, and regulators will be crucial in promoting economic growth and financial inclusion.