Government loses Sh33 billion in first two months of 2020/21 financial year

Tax revenues for the first two months of the 2020/21 financial year dropped by 14.9 per cent as businesses continue reeling from the effects of the coronavirus pandemic.

Over the months of July and August this year, the Kenya Revenue Authority (KRA) collected Sh188 billion. This was Sh33 billion lower than Sh221 billion that the taxman collected over the first two months of 2019/20 financial year.

During each month, the tax revenues were coincidentally at the same level at Sh94 billion. The taxman would need to collect more in coming months if it is to hit this year’s tax revenue target of Sh1.57 trillion.

Collecting an average of Sh94 billion a month would mean getting Sh1.12 trillion for the year. There are, however, signs of recovery among businesses after months of coronavirus disruptions.

The revenue dip is despite the government relaxing measures that had been put in place to contain the spread of Covid-19, resulting in a slow growth across many sectors.

Many of these restriction including cessation of movement into and out of several counties, the dusk-to-dawn curfew and closure of restaurants have been relaxed or lifted, with many businesses resuming operations.

In the year to June 2020, KRA collected Sh1.6 trillion, missing the target of Sh1.8 trillion by Sh200 billion.

Over the last quarter, tax revenues were affected by Covid-19, with the first case having been reported mid-March which was followed up with measures to contain its spread.

The Government has lost Sh71.5 billion in taxes between March and July months since the start of the coronavirus pandemic in Kenya.

Other than the slowed business activity experienced over the last several months that saw tax collections decline, KRA also has to contend with low tax rates.

Reducing tax rates for businesses and individuals were also among the measures that the government put in place to enable Kenyans cope with Covid-19.

In April, personal income tax (PAYE) was reduced from 30 per cent to 25 per cent, while people earning up to Sh24,000 would get 100 per cent tax relief.

It also reduced the corporation income tax to 25 per cent from 30 per cent.  Small businesses that pay turnover tax also saw a reduction to one per cent from three per cent.

KRA noted that PAYE tax grew two per cent in the financial to June 2020, which was a drop from the average growth rate of 11 per cent recorded between July and February 2020.

VAT declined seven per cent during the year, from a growth of 2.8 per cent in the initial months of the financial year before Covid-19 hit.

In the next 12 months from July to June next year, Treasury had projected that it would borrow about Sh898 billion, excluding grants from donor.

However, in the draft Budget Review and Outlook Paper (BROP), 2020, the country’s budget deficit- the difference between expenditure and tax revenue- has been revised upwards due to the poor business environment that saw the taxman collect less taxes in the financial year 2019/20. The budget hole is now estimated at Sh1 trillion, when you exclude grants which are estimated at around Sh50 billion.

The Exchequer revised downwards its earnings for the current financial year from Sh1.63 trillion announced in June by Treasury Cabinet Secretary Ukur Yatani in his budget speech to Sh1.52 trillion.

Consequently, the budget deficit as a percentage of the Gross Domestic Product is expected to rise to 8.9 per cent in 2020/21, which is higher than the eight per cent registered in 2019/20.

The Treasury said in the outlook that before Covid-19 started wreaking havoc around the world, it had embarked on a journey of belt-tightening measures and was targeting a lower fiscal deficit of 6.3 per cent of GDP in 2019/20, 4.9 per cent of GDP in 2020/21 and, ultimately, 3 per cent of GDP over the medium term.