NAIROBI, May 31 (Reuters) – Kenya’s treasury has proposed a 35 percent corporate tax for companies on annual income of more than 500 million Kenyan shillings ($4.9 million).

If the draft law is approved by parliament, it would be the highest corporate income tax rate in East Africa, where most countries have a flat corporate tax of 30 percent.

Kenya has struggled with high budget deficits over the last few years. Introducing a new corporate tax bracket may be a way to raise much needed revenue to plug the gap.

According to a draft bill published on its website, the Treasury said it had reviewed the income tax act and proposed changes to “make it productive” and “supportive to the Big Four Agenda” and economic growth.

President Uhuru Kenyatta’s “Big Four Agenda” policy is aimed at boosting economic growth through spending, improving food security and rolling out universal healthcare, supporting manufacturing, and building affordable housing.

“It’s rare to see corporate (tax) being graduated. Usually it’s a flat tax,” said Titus Mukora, a Nairobi-based partner at auditing firm PricewaterhouseCoopers.

He said that as he understood it, income above 500 million shillings would be subjected to the new tax, and anything lower than that would remain at 30 percent.

Kenya’s budget deficit is expected to drop to 5.7 percent of GDP in the fiscal year starting in July from 7.2 percent this fiscal year, estimates sent to parliament by the Treasury earlier this month showed. ($1 = 101.3000 Kenyan shillings) (Reporting by Omar Mohammed Editing by Maggie Fick and Hugh Lawson)