Treasury turns to debt as KRA misses tax target

The taxman missed its target by Sh250 billion, collecting Sh1.44 trillion against its original target of Sh1.69 trillion, according to the latest Treasury statement on revenues and expenditures. [Courtesy]
KRA failed to score even after the National Treasury shifted goalposts twice during 2018/19 financial year.

The taxman missed its target by Sh250 billion, collecting Sh1.44 trillion against its original target of Sh1.69 trillion, according to the latest Treasury statement on revenues and expenditures published in the Kenya Gazette.

Even after Treasury revised the target twice to Sh1.51 trillion in May, the taxman still fell short in what some experts have attributed to “over-ambitious targets” by the government.

And with the country’s expenditure rising faster than its tax revenues, the government was forced to borrow more to plug the deficit defeating President Uhuru Kenyatta’s much-hyped austerity measures.

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While tax revenues grew by 10 per cent from Sh1.31 trillion collected during the 2017/18 fiscal year, total expenditure grew even faster by 24 per cent.

National Treasury borrowed a massive Sh891 billion during the period under review, with the Central Bank of Kenya Governor Patrick Njoroge in a recent press briefing putting the fiscal deficit- or the difference between spending and tax revenues- at 7.4 per cent of the Gross Domestic Product (GDP). Treasury estimated the fiscal deficit for 2018/19 at 6.8 per cent.

Among some of the debt that Kenya incurred this year includes the Sh210 billion Eurobond, part of which was used to refinance another Sh78 billion Eurobond- a dollar-denominated sovereign bond- that matured in May.

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Treasury also took Sh125 billion medium-term syndicated loans between January and March to retire other short-term foreign loans.

Kenya also received Sh75.9 billion from the World Bank, which would be used mainly on support for agriculture and housing, raising the stock of commercial loans accumulated by June 2019 to Sh362.6 billion.

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Falling far below

The war on fake products might have cost the government some income, after taxes on imported goods under-performed by the end of May.

Official data showed that the taxman collected Sh97 billion in import duty in the first 11 months of 2018/19 fiscal year, falling far below its June target of Sh135 billion.

Suspended National Treasury CS Henry Rotich in his budget speech last month said the government would remain on its “path of reducing the fiscal deficit in the medium term in order to create more fiscal space and to reduce the public debt.”

Besides revamping the Public Debt Management Office at the Treasury under a Director-General to be responsible for public debt management and operations, Rotich said another unit was created to appraise “all infrastructure projects before such projects are committed in the budget, in order to establish their value for money, affordability and economic return.”

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To cut its uptake of debt, the government has put in place a number of tax administrative policies, including the automation of tax collection, in what is aimed at sealing tax leakages.

President Uhuru Kenyatta, besides freezing all new projects until ongoing ones are completed, has introduced a raft of austerity measures targeting civil servants.

As a result, Treasury froze further recruitment of civil servants, except for key technical staff, security personnel, teachers and health workers.

The government will also not extend the service of thousands of civil servants set to retire after attaining the age of 60. Moreover, Treasury announced plans to undertake another purge on the Government payroll to weed out ghost workers.

For civil servants who want to travel in and outside the country, Treasury proposed the use of an electronic card system. Technology will also be used in the management of fleet to improve efficiency and cut costs, with Treasury proposing the use of fuel cards in government departments.

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To deal with procurement fraud, Treasury proposed an electronic end-to-end solution on all procurement processes.

According to embattled Rotich, such a process would enhance efficiency, transparency and accountability in procurement. He also acknowledged that the government has been leasing office space at rates higher than the market rates, resulting in huge costs.

He had announced that beginning July 1, all procurement of office space for government use would be standardised, with existing contracts renegotiated.

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KRANational TreasuryDomnic OmondiPresident Uhuru KenyattaGross Domestic ProductCentral Bank of Kenya