Job losses and huge tax breaks slips away KRA target

Kenya Revenue Authority Commissioner-General John Njiraini.

The taxman has blamed the tax breaks in the energy sector for narrowly missing its tax collection target in the last financial year.

The Kenya Revenue Authority (KRA) netted Sh1.365 trillion to June this year, against a target of Sh1.431 trillion, reflecting a marginal Sh66 billion shortfall.

This was a 13.8 per cent improvement from the Sh1.21 collected in the 2015/16 financial year. Commissioner-General John Njiraini said yesterday the weakest growth was recorded in manufacturing and electrical power generation, the latter being attributed to large investment deduction claims by electricity generating companies.

Tax relief

Pay-As-You-Earn, the tax on formal employees, also dipped by Sh2.5 billion after the Government cushioned tax payers by expanding tax bands.

In January this year, Treasury introduced changes in the income tax law, exempting bottom-of-the-scale workers from direct tax by raising the minimum taxable income and granted a higher personal relief of Sh15,360 per year (Sh1,280 per month) from Sh13,944 per year (Sh1,162 per month).

“PAYE recorded growth of 7.9 per cent compared to the previous four-year average of 12.5 per cent, with the depressed performance partly attributed to expanded tax relief granted in January 2017 through widening of tax bands,” said Mr Njiraini in a statement.

He also noted that the dip in direct taxes on income was also caused by wage and employment freezes in the public sector and lay-offs in key private sectors, including the banking sector as firms opted for technological efficiency. The taxman, however, made up for the lost revenue in collection of excise duty from tobacco and alcohol, which are the main contributors, due to enhanced compliance brought about by improved enforcement through the Excisable Goods Management System (EGMS), especially for the spirits sector, where annual growth hit 22.7 per cent.

KRA said it would now focus on expanding this space by looping in sodas and bottled water after Treasury gave the go-ahead.

“Following the gazettement of fresh regulations to address past industry concerns, KRA plans to extend EGMS application to other sectors, including bottled water, juices, and carbonated drinks during 2017/18,” said Mr Njiraini.

Banks were also not spared despite reporting huge non-performing loans in the wake of the rate cap law, with revenues from the sector recording growth of 20.1 per cent.

“This performance is attributed to, among others, good profitability following cost management measures instituted by banks and stricter enforcement by KRA of bad debt provisioning rules,” he said.

Overall, the corporate sector taxes grew by 18.2 per cent compared to annual average growth of 13.7 per cent despite the gloom over slowdown in credit to the private sector, job losses, and closing down of a number of businesses.

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KRA tax returns