Ruto's Sh2.57tr tax target causes fresh headache for KRA

KRA has been tightening the noose on taxpayers after President William Ruto set a target to double tax collections by the end of his first term in 2027. [Elvis Ogina, Standard]

President William Ruto's proposal to mobilise more taxes has plenty of good news for the cash-strapped National Treasury, but it will have troubled Kenya Revenue Authority (KRA) scrambling to achieve the ambitious plan.

KRA has perennially missed tax targets and will come under more pressure to seal revenue leaks against the backdrop of higher collection targets set by the government.

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 financial year to June 2023.

It is widely expected to miss its current target based on collections so far made public.

President Ruto indicated recently that other than taxpayers' apathy, widespread corruption within KRA ranks had made it difficult for the government to meet revenue targets.

"Collusion, wanton bribe-taking and general corruption continue to pervade operations of KRA, facilitating tax evasion, massive leakages of potential revenue and inability to meet revenue targets," said Ruto while filing his tax returns at KRA headquarters recently.

A much-awaited purge to rid the taxman of rogue workers is however yet to publicly kick off despite the presidential protest with anti-graft agencies remaining tight-lipped.

The president also wants KRA to adopt technology to boost collections. This is part of his grand plan to broaden the country's tax base and raise revenue to enable him to deliver on his raft of pledges over the next financial year.

For instance, the taxman will be required to collect transactional data from all traders, individuals and companies in the country in near real-time, tightening the noose on tax cheats.

Armed with new electronic invoicing and reporting tools, KRA will be able to collect information without waiting for taxpayers to file, even at the point of a commercial transaction to make its own assessment of the tax due.

Ruto has often expressed his frustration with KRA's failure to reach targets. He recently cited corruption, as he maintained that the taxman must put the Times Tower house in order to help his government deliver on its promises.

"As I mentioned during the Annual Taxpayers' Week, the Kenya Revenue Authority has some way to go in becoming the fit-for-purpose national revenue administration agency that Kenya needs at this point in our development journey," he said.

Ruto warned that rogue KRA officers have been manipulating their systems to reduce tax liabilities.

The sophisticated cartels launch the schemes during tax audits and compliance checks for firms with pending bills. They then lure KRA officers and offer them bribes in exchange for a reduction of tax payable.

Kenya Revenue Authority (KRA) headquarters, Times Tower building, Nairobi. [File, Standard]

In 2015, former President Uhuru Kenyatta ordered that all KRA staff undergo a compulsory lifestyle audit to account for their sources of wealth.

But so powerful are the cartels that successive governments have failed to rein them in.
KRA has been under pressure from the 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 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 Sh720 billion during the year.

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, 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 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.

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