KRA to miss revenue targets despite collecting more taxes

By Paul Wafula

 The country’s tax collection grew by 12.6 per cent to hit Sh380 billion in the first half of the year ending December, buoyed by medium and small taxpayers even as it became clearer that the taxman will not meet this year’s target.

The Kenya Revenue Authority is skeptical it will meet the Treasury’s Sh881.2 billion full year target, given that the tenth Parliament has finished its sittings without passing the controversial VAT 2012 Bill.

“The targets were fairly ambitious and were prepared with the expectation that Parliament will pass the VAT Bill. However, this is yet to happen and it is unlikely that it will be passed now that Parliament’s term has expired,” KRA boss John Njiraini said in a media briefing yesterday.

The taxman estimates that the lack of the law, which would have reduced the number of goods zero rated, has cost it Sh11 billion worth of revenue losses. By end of December, the taxman should have raised about Sh440 billion to remain on track its ambitious target. It has, however, said it is negotiating with the Treasury to give it a more realistic target that factors in the latest macroeconomic environment and the fact that the legislation expected to boost revenue collection is yet to be enacted.

Refund claims

“Delay in enacting the Bill continued to negatively impact domestic VAT given the significant revenue expected from its implementation. Apart from the revenue losses — estimated at Sh11 billion — the delay also continued to fuel a build-up in VAT refund claims,” Njiraini said.

According to a breakdown of the latest tax collection figures, the medium and small taxpayers were the fastest growing segment of revenue collected by the taxman, growing by 22.2 per cent to hit Sh77.7 billion in the period between July and December 2012.

Large taxpayers were the second fastest growing segment, raising Sh170.5 billion in what saw the segment remain the most important contributor. On its part, the customs services department tax collections rose 7.4 per cent to Sh130.8 billion in the period under review.

Road transport generated Sh1.5 billion worth of taxes in the half year, up from a Sh1.4 billion is a similar period in 2011. This represents a 7.8 per cent growth.

This comes at a time KRA is under increasing pressure from the Treasury to up its game in tax collection to meet the ballooning expenditure after Government was forced by strikes to increase salaries of teachers and doctors late last year. The transition into the devolved system of Government and the March 4 election has also put new pressure on the taxman to collect more taxes.

Revenue targets

This year, the taxman is expected to collect Sh881.2 billion out of which Sh845.4 expected to be given to Treasury and the remaining Sh35.9 billion retailed as agency revenue.

The agency fee will be deposited directly to accounts of institutions that have contracted KRA to collect taxes on their behalf.

He said a drop in revenue collections in the first half were also undermined by a decline in oil volumes from 2.665 billion litres in 2011/12 to 2.607 billion litres in 2012/13.

“In addition, we noted a shift in the composition of dry imports away from the high tariff bands of 25 per cent and above, to lower tariff bands of below 10 per cent. This movement of import patterns, which was initially noted in the first quarter, led to risk based interventions in the second quarter that resulted in improved revenue collection,” Njiraini said.

The taxman is counting on various initiatives now in place, including taxation of rental income, to come close to the targets.