Acting Treasury Cabinet Secretary Ukur Yatani and newly appointed tax Chief James Mburu find themselves with the responsibility of jump-starting an economy that is in the red.
At stake is funding a Sh3 trillion spending plan that can hardly be supported by a slowing economy.
Mr Yatani and Mr Mburu will have to tip-toe around many years of political meddling and corruption scandals to get results from an economy that is grinding to a halt.
Yatani, the man from Forole village on the border with Ethiopia in Marsabit, is in the limelight for getting the country out of its current economic crisis whose shockwaves have been felt in every household.
Yatani’s colourful CV includes a posting to Austria as a diplomat, MP for North Horr and governor for Marsabit. He is also the man at the centre of President Uhuru Kenyatta’s legacy agenda.
All odds are stacked against the soft-spoken Catholic in his current role as acting CS at the Treasury, where he has to somehow fund government operations.
The best tax collection the taxman has ever achieved is about Sh1.5 trillion. This is against a debt repayment of Sh800 billion annually, and county governments taking an equitable share of slightly more than Sh300 billion.
This means the government has to borrow the balance to run its operations and pay State workers their salaries and pensions.
Since his appointment on July 24, slightly over three months ago, Yatani has learnt unpleasantly that there is no money. He has also had to compile the country’s debt afresh, perhaps on fears that they may have been grossly understated, and presented the shocker to Parliament.
More than half of the tax collected this year will go towards repaying loans, including Sh93 billion to China, being Sh51 billion in repayment and Sh42 billion in interest, according to official records.
“As a country, we have never defaulted on any loans and we will not,” Yatani said in an interview this week.
His belief is informed by the fact that debt repayment is the priority for any government, even before paying pensions and salaries.
Budget books indicate that of the Sh800 billion loan repayment due this year, more than half is in interest.
Yatani has separately acknowledged that the loan payout is unsustainable, informing the need to urgently restructure the repayment schedule to avert defaults.
“We must find a way of retiring expensive loans and taking up cheaper ones from friendly development partners,” he said.
Henry Rotich, the former CS at the Treasury, had foreseen that repaying the loans this year would be an uphill task, especially if the new debt would have to be procured to repay maturing ones.
The refinancing risk – the technical term for the possible inability to borrow from A to repay B this year – “is significant”, said the former CS in the last Medium Term Debt Management Strategy report.
He gave his reasons as the debt that was maturing immediately would gobble up 54.4 per cent of projected revenues. And already, the tax collection forecasts were overly ambitious.
Across the road from Yatani’s office is Times Tower, which houses the Kenya Revenue Authority. This is where the money should come from through the collection of taxes.
Mburu, the recently-appointed KRA commissioner-general, has come out guns blazing and made it clear that taxes must be paid.
He is fiercely pursuing suspected tax cheats in at least 1,000 court cases, including a Sh41 billion payment from Africa Spirits, an alcoholic beverages manufacturer whose operations have already been clamped.
It is already a difficult period for businesses, and indications are that the ambitious tax target of Sh1.8 trillion will not be met.
As it is, the tax proposals introduced this year that should have helped meet the target are five months late as the Finance Bill, now Finance Act, only came into force yesterday rather than the July 1 expected effective date.
Companies are booking massive losses and declaring huge layoffs, hurting a critical revenue stream, income taxes. In the last year, more than 20,000 employees have woken up to the shocking news that they have been rendered jobless.
Further, KRA has perpetually missed its targets. Based on past trends, Sh1.6 trillion is a more realistic revenue target, but means available revenues are not enough to cover recurrent expenses even before thinking about any development spending. Yet, President Kenyatta’s Big Four agenda is to be funded entirely from development budgets.
KRA started the financial year on the wrong foot, missing its first-quarter revenue target. It collected Sh372 billion over this period, when it should have booked at least Sh450 billion to get close to its full-year target.
KRA has in the recent past taken on an aggressive approach to dealing with suspected tax cheats, with emerging realities that money is needed and there is not much scope to borrow.
This has seen the entity end up with numerous cases at the courts, as well as the tax appeals tribunal. The over 1,000 cases at the courts represent a contested tax bill of Sh300 billion.
This aggression might, however, not work in favour of the taxman, with a senior economist at the Treasury noting that KRA has been pushing businesses to near collapse, with some exiting the country.
“Aggressive taxation in [during] a depression will be the death of private enterprise,” the economist said.
“When KRA pursues companies with the vigour it has exhibited in recent years, it will result in companies spending a lot of time and resources to fight off the tax authority and at the same time find ways to avoid paying taxes or hiding what they have.”
The sentiments were shared by Uhuru who, while n poting that KRA should be empowered to pursue tax cheats, said there are instances where diplomacy and understanding should come into play.
The President noted that KRA should take up alternative dispute resolution mechanisms, instead of engaging in never-ending court battles with some taxpayers, especially those that have a good track record.
“Where the taxpayer has not knowingly engaged in tax evasion or other criminal conduct, and where the taxpayer has a demonstrable prior record of good tax compliance … it might be better for KRA to meet the taxpayer part of the way and deliver immediate tax collections rather than wait for an outcome of a lengthy and adversarial process that may be subject to further lengthy appeals,” Uhuru said.
He added that where there have been confirmed incidents of tax evasion or other criminal conduct, the police should do their work without appearing to be harassing traders.
“You must not make every business criminal when they are not … we know the criminals. Where we can sit and discuss, let us sit and discuss, find solutions and allow businesses to continue with their activities,” said the President.
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