Blow for William Ruto's tax plan as KRA misses target by Sh43.2 billion

President William Ruto during the 2022 Taxpayers' Day at the Kenyatta International Convention Centre, Nairobi on October 28, 2022. [PCS]

New data shows that tax collection in the six months of the current financial year fell short of the new government's target by Sh43.2 billion. This deals a major blow to President William Ruto's revenue collection plan to fund his costly campaign promises.

The Kenya Revenue Authority (KRA) collected a total of Sh985 billion between last July and December in taxes, falling short of the target of Sh1.028 trillion that the National Treasury had set for the period.

"Ordinary revenue collection was Sh985 billion against a target of Sh1,028.1 billion, Sh43.2 billion below the target," said Treasury in its Quarterly Economic and Budgetary Review for the first half of the 2022/2023 financial year, ending December 31, 2022, published yesterday.

"All ordinary revenue categories recorded below-target performance during the period under review except VAT (Value Added Tax) on imports, import declaration fees and other revenue, which overperformed by Sh4.1 billion, Sh10.4 billion and Sh5.3 billion respectively."

Revenue collected

Treasury said by the end of last December, its total revenue collected, including A-I-A (Appropriation-in-Aid), amounted to Sh1.147 trillion against a target of Sh1.158.2 trillion, weighed down by the KRA tax target shortfall.

KRA missed the target for income tax - imposed on income generated by businesses and individuals - by the highest margin of Sh18.1 billion, having collected Sh220.8 billion against a target of Sh239 billion.

The taxman missed the target for VAT for local transactions by Sh16.9 billion having collected Sh127.2 billion in the period.

On the other hand, the targets for Pay As You Earn (PAYE), charged to employees, fell short by Sh11.7 billion, signalling more individuals were laid off during the period. KRA collected PAYE of Sh230.8 billion against a target of Sh242 billion.

At the same time, the target for excise duty charged on manufactured goods fell short by Sh8.6 billion, with KRA collecting Sh130.3 billion against a target of Sh139 billion.

KRA has been under pressure from the new Kenya Kwanza administration to seal revenue leaks and boost State coffers to enable Treasury to wean itself off reliance on public debt.

KRA has consequently been tightening the noose on taxpayers after President Ruto set a target to double tax collections by the end of his first term in 2027. The new government plans to increase tax revenues as a percentage of the gross domestic product (GDP) from 17.3 per cent over the current financial year to 17.8 per cent in the 2023/24 financial year.

President Ruto, who has spoken against incurring more debt to fund programmes, is banking on increased tax collections by KRA to reduce the need for borrowing and bridge the budget deficit his government estimates will be at Sh695.2 billion during the year.

KRA is expected to collect Sh2.57 trillion in the 2023/24 financial year, which is 17 per cent more than the Sh2.19 trillion it is projected to collect over the current financial year to June 2023. The President reckons a host of new systems and radical changes at KRA will help achieve the targets and bring more Kenyans into the tax bracket. During last year's Taxpayers Day, which is organised by KRA annually, President Ruto set a target to double tax collections by the end of his first term in office.

The President noted that it is possible to increase tax revenues by 100 per cent over the next five years as tax collections remain far below their potential. He said technology could play a critical role in growing tax revenues.

"The imperative of embracing technological solutions to KRA's strategic issues is clear. There are only seven million people with KRA PIN numbers. At the same time, in the same economy, Safaricom's M-Pesa has 30 million registered customers, transacting billions of shillings daily," said President Ruto.

But experts have cautioned that raising taxes might not have the intended impact of increasing revenues and that the government should instead focus on growing the tax base.

In some instances, tax experts opine, the government should consider reducing taxes to boost businesses as well as the spending power of Kenyans, a move they say can help the economy reeling from multiple shocks, including the prolonged dry spell, high energy costs and the Covid-19 aftershocks.

"Kenya has some of the highest tax rates in the world. Our income tax brackets have pretty much stayed the same since early 2000," said Kunal Ajmera, the chief operating officer at Grant Thornton, a consultancy firm.