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Treasury cuts annual revenue target by 5pc for year 2018-19

By Bloomberg | January 7th 2019 at 00:00:00 GMT +0300

Peter Mikisi, a petrol station attendant in Nakuru fuels a car. Despise the introduction of new taxes, revenue collection has failed to grow forcing the Government to revise it downwards. [Kipsang Joseph, Standard]

Kenya has cut its revenue target for this fiscal year by five per cent to Sh1.61 trillion, the second year in a row, with the National Treasury revising its tax goal downward.

 The Kenya Revenue Authority (KRA) initially sought to raise Sh1.69 trillion in the year through June 2019, National Treasury Secretary Cabinet Secretary Henry Rotich said in a notice in the Kenya Gazette.

The country collected Sh1.37 trillion in the previous period, missing a twice-lowered target of Sh1.415 trillion.

Factors such as bleak corporate earnings and job cuts “collectively mean the overall economic activity gets cut, thus net collections are projected downward,” said Deepak Dave, founder of Nairobi-based Riverside Capital Advisory.

The inability of the agency to effectively collect various new levies introduced this fiscal year may also have prompted the cut, he said.

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Tax income rose 9.2 per cent to Sh555.7 billion in the five months through November, according to the notice. Kenya spent Sh 254.2 billion of that amount on public debt service and expects to repay Sh870.6 billion in the full-year period.

This means that Treasury mandarins’ proposal to net higher revenue by taxing Kenyans more seem to have hit a brick wall.

According to an International Monetary Fund (IMF) report, “revenue collections were significantly lower than budgeted and 0.4 percentage points of the gross domestic product (GDP) lower than the previous fiscal year despite adjusting Value Added Tax (VAT) to inflation and imposing new taxes on petrol, mobile data, money transfer, and housing.

Taxes collected for the five months to November 2018 are just one-third of the targets set for 2019 which means that at an average of Sh92 billion monthly, they could be on course to collect only Sh1.1 trillion by June next year.

This proves that the administration might not be the problem; it is the economy that has no more money to be taxed, according to analysts.

“This is an indication that collections may not be lower because of enforcement but there is no demand generated by consumption to be taxed VAT or incomes are falling,” Deepak said.

Economist Robert Shaw said this was an indication that Treasury had been inflating revenue figures and basing expensive budgets on unattainable revenues thus creating the need to keep borrowing.

“The Government tends to inflate projections with revenues. We are not collecting the sort of money needed for the budget,” Mr Shaw said.

Mr Deepak pointed out that the problem could lie in the projection model where Treasury could be putting the cart before the horse.

Some analysts say Treasury figures could be toxic from illegal activities, including fake VAT receipts that inflated the activity in the market, and that the taxman could be chasing ghosts. [Additional reporting by Otiato Guguyu]

Treasury Revenue Target Kenya Revenue Authority
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