Massive job losses contributed to poor tax collection in January with the Kenya Revenue Authority (KRA) missing its target by Sh122 billion.
A presentation made by the National Treasury before Senate Standing Committee on Finance and Budget showed that the taxman had collected Sh937 billion by end of January against a target of Sh1.06 trillion.
All the tax heads declined, but pay as you earn (PAYE), which is paid by salaried workers, experienced the sharpest drop at 25 per cent, which was a shortfall of Sh36.2 billion.
Value Added Tax (VAT), which is charged on all sales of goods and services, declined by 24 per cent, with the government netting Sh104.9 billion against a target of Sh150.4 billion.
The government collected Sh123 billion from excise duty, popularly known as sin tax, falling short of the target by Sh18.4 billion. Excise tax is levied on alcohol, cigarettes, financial transactions as well as other non-alcoholic beverages such as bottled water.
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Import duty, which helped KRA surpass its target in December was below target by three per cent, with the taxman collecting Sh59.9 billion from international trade.
Income tax, which is paid by large corporations, fell short of the target by 16 per cent. KRA got Sh350.6 billion against a target of Sh387.5 billion.
Although the economy has partially re-opened, recovery has been muted as most of the containment measures such as the dusk-to-dawn curfew continue to be implemented.
"The economy demonstrated signs of recovery in the third quarter of 2020 following reopening of the economy, but the pickup is weak,” said Treasury.
The economy contracted by 1.1 per cent in the third quarter of 2020, which is an improvement compared to the contraction of 5.5 per cent in the second quarter of 2019.
Moreover, a lot of workers continue to earn lower salaries following pay cuts that firms introduced.