How Kenya can achieve revenue and growth objectives

KRA Commissioner General John Njiraini(L) addresses a press conference at Times Tower, Nairobi on Tuesday 19/07/16 over car registration.PHOTO:BONIFACE OKENDO

Two reports released last week are a clear demonstration that the Government needs to re-engineer the way it raises taxes, borrows money and finances its operations.

The Parliamentary Budget Office (PBO) report showed that only a third of the Government’s development projects were implemented last year. Although this low expenditure was, ostensibly, driven by even lower absorption of foreign financed projects, there is reason to believe that the challenges Kenya Revenue Authority (KRA) faced in meeting its collection target also played a part.

The fact that money received from external grants was lower than 50 per cent of the budgeted amount made an already bad situation worse.

Last year KRA collected Sh1.22 trillion, a whooping Sh80.9 billion shortfall. Apart from forcing the Government to go into domestic and foreign borrowing to meet the budget—a development that has an adverse effect on domestic private borrowing—the huge shortfall has the effect of undermining the confidence of KRA staff. This has a knock-on effect on their ability to meet the targets set for them in future.

The other down-side to such shortfall, particularly when they become the rule rather than the exception is that staff morale plummets so much that individual employees are drawn into joining forces with tax evaders because their employer—the National Treasury—has made them feel they cannot do their work adequately.

Yet, another reason that may persuade Treasury to re-examine its penchant for over-estimation of expected revenues and increase in the number and scope of projects to be undertaken in a given year is the realisation that it leads to a multiplication of taxes.

ELECTIONS MOOD

Inevitably, the multiplicity of taxes increases the cost of doing business. And this, in turn, discourages investors from setting up businesses or expanding and further reducing the level of taxable income.

The second report was released by the National Treasury and it showed that recurrent expenditure has gobbled up 97 per cent of all the monies released since the beginning of the current financial year. Treasury Cabinet Secretary Henry Rotich tried to explain it away by saying that the request for cash is very low because ministries are developing their procurement plans and loading them on IFMIS, the truth that cannot be overlooked is that 16 per cent of the financial year is gone; never to come back.

This increases the possibility that the number of development projects implemented in the current financial year could be lower than the previous one. The realisation that the country is already on an elections mood increases the possibility that the number of projects implemented may not only be lower but the quality of the work done may also be questionable.

But, perhaps, even worse, these delays might be partly designed to open the floodgates of looting usually witnessed just before the elections. One way of dealing with these multiple challenges is to put a stop to the ever escalating budget estimates by identifying the projects to be undertaken in any given year after a thorough inter-ministerial analysis. The inclusion of projects in the annual budgetary estimates would then be done only after all the factors that could lead to their delays are thrashed out.

 

Experience gained over the past few years has, for example, shown that payments for private land are becoming both tedious and expensive. This means the Government may need to come up with a new mechanism to deter latter-day carpetbaggers from clogging the procurement pipeline with their unreasonable demands. If this means the passing of new legislation, so be it.

The other group of individuals whose activities need taming are the serial litigants who rush to court to stop awarding of contracts just because they lost during the bidding process. As the recent story of buying computers from primary schools demonstrates, some of the litigants’ activities not only slow down a project’s implementation but may even increase the overall cost.

But the truly reprehensible part of these schemes is that they are, more often than not, perpetrated by people within the government system. Obviously, this means no improvement can be made until the government finds the political will to identify and throw out those who are sabotaging it from the inside.