The Kenya Revenue Authority (KRA) missed its tax collection target by Sh186.3 billion since March when the country reported its first case of Coronavirus.
Commissioner General for KRA Githii Mburu said the taxman collected Sh1.09 trillion against a target of Sh1.28 trillion in the eight months to November.
Besides, a tough business environment occasioned by the adverse effects of Covid-19, the poor tax collection was also due to the decision by the government to offer tax reliefs to citizens, which saw KRA forego Sh65 billion.
"It is important to note that, during the 48th East African Revenue Authorities Commissioner General's meeting held on November 11, 2020, it was established that, within the greater East African region, it is only Kenya that took the bold step of cushioning its citizens from the debilitating negative impact of Covid-19 by temporarily reducing tax rates," said Mbithi in an advertisement.
However, with the government keen on stimulating the economy through its Sh930 billion post covid-19 economic recovery strategy, President Uhuru Kenyatta's administration has decided to end these tax reliefs.
As a result, resident corporate tax paid by big businesses will revert to 30 per cent from 25 per cent, the same will be the case for Pay-As-You-Eearn (PAYE). But those earning Sh24,000 and below will continue enjoying a 100 per cent waiver.
Turnover tax, which is deducted from monthly sales for small businesses will also be retained at one per cent in what is aimed at supporting micro, small and medium enterprises.
Value Added Tax (VAT) which is levied on every sale of goods and services will revert to the standard 16 per cent from 14 per cent.
"The reversal of the tax rate measures will enable the government to find the Post-Covid Economic Recovery Strategy. It will also empower the State to pursue its fiscal consolidation measures to ensure that the public debt position remains sustainable," said Githii.
As part of Kenya's deal with the International Monetary Fund (IMF), the government is expected to increase tax collection as a condition for receiving a Sh250 billion debt.
This is aimed at reducing the country's debt vulnerabilities, with Kenya's risk to debt default now categorised as "high" by the IMF and the World Bank. Kenya's debt is expected to hit Sh8.4 trillion, which would push the ratio of debt to gross domestic product (GDP) to over 76 per cent. It might be worse considering forecasters expect the economy to shrink.
Another condition for the IMF loan is the restructuring of the loss-making State-owned enterprises, which might result in job cuts.
Treasury said the Sh929.5 billion war chest will help reboot the economy by investing in areas that would enable businesses to thrive and create jobs.
The amount is separate to the Sh2.7 trillion budget set for the current financial year. The new funds will direct money towards social protection, particularly to vulnerable groups like orphans, and the elderly, healthcare and transport.
The cash will also be used to hire more teachers, purchase desks, upgrade ICT and internet in universities. Civil servants will also start paying pensions.
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