Treasury in tight spot as tax revenue falls short of target

Treasury building in Nairobi.
Kenyans should brace for tough times ahead as the government faces a revenue shortfall that could see Treasury introduce new taxes in the next financial year to bridge the budget deficit.

According to the latest revenue statement from the National Treasury, the Kenya Revenue Authority (KRA) has managed to collect just Sh900 billion against a target of Sh1.6 trillion with just three months left to the 2018/2019 financial year.

Total government revenues stood at Sh1.4 trillion against a Sh2.58 trillion target despite the Treasury borrowing Sh311 billion from the domestic debt market.

This has affected the government’s spending plan with allocations to crucial departments and ministries receiving a fraction of their approved monies.

The revenue shortfall has also affected the 47 counties which received Sh177 billion as at the end of February, representing just 53 per cent of their due allocations for the 2018/2019 financial year.

Other State departments and ministries are also cash strapped with allocations for development expenditure hardest hit.

The State Department for Planning, for instance, has received Sh5 billion of the Sh12 billion approved for the current financial year despite the country heading for a national census later this year.

The revenue shortfall comes despite the government introducing new tax measures this financial year that led to an outcry from business and consumer lobby groups.

Last year, the World Bank cautioned that Kenya’s tax revenue as a share of gross domestic product has fallen to its lowest in 10 years, standing at 15.4 per cent in the 2017/2018 financial year, down from 17.1 per cent in 2016.

According to the World Bank, this drop could be attributed to lower profitability in the corporate and banking sectors and inefficiencies in remitting income tax by struggling parastatals.

“This is attributed to under-performance in both income tax and VAT – Kenya’s largest sources of tax revenue accounting for over 70 per cent of tax revenue,” said the bank in the 2018 Kenya Economic Update.

In the Finance Bill 2018, Treasury resorted to a raft of new taxes including eight per cent value-added tax on petroleum products, Sh18 adulteration fee per litre on kerosene as well as a 1.5 per cent National Housing Development Fund on gross monthly earnings of employees that is to be matched by employers.

President Uhuru Kenyatta also recommended the doubling of duties on money transfers to 20 per cent as well as higher taxes on mobile phone calls, internet usage and mobile phone cash transfers, a move that saw service providers pass on the costs to consumers.

These measures seem to have fallen short of raising the expected funds with the Treasury now hard pressed to raise the cash necessary for meeting the Government’s obligations.  

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