Company layoffs cost taxman Sh37b amid pandemic slump

KRA Commissioner General Githii Mburu speaking during the launch of the Taxpayers month on 4th October 2021. [Wilberforce Okwiri,Standard]

Kenya Revenue Authority (KRA) collected Sh363 billion in income tax from individuals for the year ended June 30, 2021, a 10 per cent drop compared to Sh400.7 billion collected the previous year.

KRA has attributed the drop to the effects of the Covid-19 pandemic that caused layoffs in companies across several sectors. 

“PAYE (pay as you earn) registered a decline of 9.3 per cent compared to the previous year due to the impact of Covid-19 that resulted to loss of employment and reduction of PAYE rates from 30 per cent to 25 per cent to ease the impact of Covid-19,” the taxman explains in a note to the financial statements.

KRA revised income tax targets by 16 per cent to accommodate the impact of the pandemic that led to mixed performance across the various revenue streams.

Data from Kenya National Bureau of Statistics (KNBS) indicates that the number of workers in the formal and informal sectors stood at 2.8 million and 14.5 million in 2020, a six per cent and three per cent drop respectively compared to the previous year.

Income tax from corporations grew by 3.8 per cent to Sh329.5 billion in the year ended June 2021, up from from Sh317.5 billion the previous year while capital gains tax collected Sh2.5 billion, a 43 per cent drop from Sh4.4 billion recorded the previous year.

“The performance is mainly attributed to reduced remittance from finance, insurance and manufacturing sectors,” KRA said.

“In particular, installment remittances were impacted by the Covid-19 containment measures on reduction of corporation tax rate from 30 per cent to 25 per cent in the first half of the financial year.”

Collections through the Petroleum Development Levy stood at Sh25.8 billion for the year, a more than ten-fold increase compared to Sh2 billion collected the previous year.

This was attributed to a surge in the importation of oil and petroleum products as supply chain constraints in the global economy eased in the second half of the financial year. 

The financial results further indicate that the taxman collected Sh501 million in digital service tax (DST), representing 0.15 per cent of the taxman’s Sh332.1 billion income tax haul.

DST is payable on income accrued in Kenya from services offered through a digital marketplace and is set at 1.5 per cent of the gross transaction value.

The tax was met with pushback by some service providers in the sector, with the National Treasury accused of using the ICT sector as a cash cow.

Collections from rental income stood at Sh10.7 billion in the year ended June 2021, up from Sh10.1 billion the previous year while turnover tax almost doubled to Sh63.4 million.

“Betting taxes performed at 148 per cent with a collection of Sh3 billion against a target of Sh2 billion,” KRA said.

“This is attributed to the gradual resumption of football and other betting activities following gradual easing of Covid-19 restrictions.”

KRA also earned Sh29.2 billion and Sh21.6 billion respectively in excise taxes charged on airtime and money transfer.