The Government has been told to ramp up taxes as a means to get out of its debt hole.
The International Monetary Fund (IMF) yesterday said that as part of fiscal consolidation, Kenya should focus more on mobilising taxes, which it said would be more effective than cutting expenditure.
“Domestic revenue mobilisation is good for reducing the debt-to-GDP ratio,” said Abebe Aemro Selassie, the director of the African Department at IMF.
He urged Kenya to revise some of the tax exemptions as a means to raise tax collections.
Budget Director-General Geoffrey Mwau admitted that the country’s fiscal space had narrowed and they were looking at ways of consolidating from the revenue side.
He however insisted that the Government was not about to increase taxes, but would only be aggressive in enforcing compliance.
“We will not increase taxes, we will just collect,” said Dr Mwau.
The Government last year missed its tax collection target by around Sh100 billion, a situation that has seen it revise downward its revenue target for the current financial year.
Kenya Revenue Authority (KRA) has been given a target of Sh1.8 trillion for the current financial year.
In a related development, KRA has finally rolled out an excise duty management system that has previously put it at loggerheads with manufacturers.
Products such as alcohol, juices, bottled water, energy drinks, soda and other non-alcoholic beverages are expected to be affixed with the Excise duty stamp at the factory or at the point of entry for imported goods.
Products manufactured or imported on or after November 13 should have the stamps or the traders will be prosecuted, said KRA in a notice.
Those manufactured or imported before this date should have the stamps by January 31, 2020.
Acting National Treasury Cabinet Secretary Ukur Yattani said last week they had since learnt from the years of revenue shortfalls that they have been setting targets too high.
As a result, he told National Assembly’s Budget and Appropriations Committee, that Treasury had decided to cut the target for the 2019/20 financial year.
For a while, Treasury officials have refused to acknowledge the unmet tax collection targets, which have resulted in increased borrowing to plug the deficit.
“To avoid going back, making budget based on false assumptions, this time we have decided to be realistic. We know our deficit last year, we know our deficit for many financial years,” said Yattani.
“So we have adjusted our revenue estimation to a figure that is near realistic.”
Simon Kitchen and Vinita Kotedia of EFG Hermes Holding, in a research report, noted that suspended National Treasury Cabinet Secretary Rotich’s departure seems to have unlocked a number of reforms.
They said that although Kenya stands out in undertaking fiscal reforms, its debt-to-GDP ratio, currently at 63 per cent, remains high among its peers including Rwanda, Uganda and Tanzania.
The decision to reduce the tax targets has informed the recent austerity campaign, which will see a number of discretionary expenditure including travel slashed by half.
About Sh131 billion has been taken away from State corporations, including Sh78 billion from agencies’ savings and excess funds as the Government moves to amass cash to finance the economy.
On the impending arrangement between Kenya and IMF, Central Bank of Kenya Governor Patrick Njoroge said they were not in a rush, although discussions were ongoing.
“There are certain things which we were doing which are ours,” he said, emphasising that they were not being pushed by the Washington-based institution to undertake certain reforms as a condition to get the credit facility.
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