Treasury admits war on fakes denied Government revenues

Treasury has admitted that the crackdown against counterfeit goods cost the country more than Sh2 billion in tax revenues in the last financial year.

In the Draft 2019 Budget Review and Outlook Paper, the Exchequer also blamed the late enactment of the Finance Bill 2018 for the failure to meet the tax collection targets.

“Although import duty collection was broadly on target, it is believed that the spirited fight against substandard and counterfeit goods in the first quarter of the year depressed the performance of this tax item,” said Treasury.

In the first three months of Financial Year 2018/19, Kenya Revenue Authority (KRA) collected Sh25.7 billion in import duty against a target of Sh27 billion.

In January, National Treasury noted the underperformance of import duty below the cumulative November 2018 targets, promising to closely monitor its performance and that of Excise taxes.

The war against substandard goods has affected small traders the most, with some of them going for months without receiving their goods.

Moreover, import declarations levy and import duty have also gone up, eating into their profitability. Imports from January to May were Sh726 billion, a decline from Sh756 billion in the same period in 2018.

China, Kenya’s leading source of imports, has seen its import bill decline as the Government’s crackdown on tax cheats has disproportionately affected small traders who import manufactured goods from the Asian giant.

Treasury noted that tax revenues were largely below the revised target in all the broad categories, with income taxes which comprises Paye As You Earn (PAYE) and other income tax recording a shortfall of Sh56.8 billion. In total, KRA missed its target of Sh1.58 trillion by Sh91 billion.

“The performance of income tax was affected negatively by various factors; first the delayed enactment of the Finance Act 2018 and thereafter the court injunctions which followed its enactment frustrated the implementation of the revenue yielding policy measures, especially withholding tax on winnings. The high increase in investment deductions further affected negatively the collection of income tax.”

In a report on KRA’s finances, outgoing Auditor General Edward Ouko noted that of the Sh364 billion the taxman said it collected as income taxes in 12 months to June 2018, PAYE totalling Sh12.9 billion from the 47 counties was not paid.

KRA said the Sh12.9 billion was payment remitted directly to Central Bank of Kenya through IFMIS.

“Since counties, county assemblies, ministries, and State departments make all payments through IFMIS, which is not fully integrated with iTax, their ledgers are updated through a continuous manual reconciliation process to reflect the credits when the payments are sighted in the CBK statements,” said KRA Commissioner for Domestic Taxes Elizabeth Meyo.

Treasury noted that the introduction of the anti-adulteration levy was effective as annual kerosene volumes dropped by over 60 per cent - much higher than the projected 20 per cent.

However, the fall in import volumes of kerosene negatively affected levy collection and the overall excise duty taxes.