CS Henry Rotich faces uphill task as next budget increases by Sh165 billion

NAIROBI: The Government plans to spend Sh2.07 trillion in the next financial year as the taxman struggles to meet revenue targets.

The figure is Sh165 billion more than the budget for the 2015/16 financial year. But it will be another year of fire for the taxman, who will be expected to collect Sh200 billion more in the 2016 revenue projections despite failing to meet this year’s target.

The draft 2016 Budget Policy Statement, which is up for public debate, has indicated that the Government hopes to raise Sh1.5 trillion in revenue, including Appropriation-in-Aid (AIA)—what is internally generated by various ministries and agencies. In the current financial year, KRA is expected to collect Sh1.3 trillion.

“This performance will be underpinned by ongoing reforms in tax policy and revenue administration,” the BPS reads in part. The BPS is a document that explains the economic context within which the new budget will be presented. Members of the public have until today to give comments on the document before it is finalised and forwarded to the National Assembly for debate.

Treasury Cabinet Secretary Henry Rotich is hopeful that growth at the domestic level will remain strong and will pick in 2016. “In this BPS, we aim to address the outstanding challenges that continue to be a drag on growth and bolster resilience to shocks,” Rotich says in the BPS statement.

However, the difficulty for the taxman to meet its annual tax targets has seen the government soften its expenditure growth in a bid to deal with the bulging deficit. By the end of December 2015, the total cumulative revenue, including Appropriations-In-Aid (AIA), amounted to Sh575.2 billion against a target of Sh642.9 billion. This means that the Government had total shortfall of Sh67.7 billion.

“Ordinary revenue collection was below target by Sh47.6 billion while A-I-A collection fell short of target by Sh20 billion,” the BPS says. The shortfall is a continuation from the first quarter when KRA reported Sh300 billion against a target of Sh328 billion.

The shortfall was mainly attributed to drop in payroll taxes and delayed application of the Excise Duty Act 2015. The data showed KRA was short by Sh37 billion from income taxes and another Sh14.1 billion in Valued Added Taxes.

PROFIT WARNINGS

“The overall fiscal deficit inclusive of grants is therefore projected to decline from 8.1 per cent of Gross Domestic Product (GDP) in 2015/16 to 6.9 per cent in 2016/17,” the BPS reads. The higher deficit continues to reflect the implementation of one-off Standard Gauge Railway (SGR) project.

“Including grants and excluding expenditures related to the SGR, the deficit declines from 6.3 per cent of GDP to 4.1 per cent over the medium term,” the BPS says.

This has seen the Government put a ceiling for development expenditures including foreign financed projects (excluding net lending) to Sh 682.3 billion in 2016/17 financial year.

“Part of the development budget will be funded by project loans and grants from development partners, while the balance will be financed through domestic resources,” the statement adds.

It is not yet clear what magic the taxman will use to meet the new revenue targets at a time when more than 18 companies have issued profit warnings since last year, following a difficult operating environment. This is set to reflect on the overall collections from the taxman.