The Standard Group Plc is a multi-media organization with investments in media platforms spanning newspaper print operations, television, radio broadcasting, digital and online services. The Standard Group is recognized as a leading multi-media house in Kenya with a key influence in matters of national and international interest.
  • Standard Group Plc HQ Office,
  • The Standard Group Center,Mombasa Road.
  • P.O Box 30080-00100,Nairobi, Kenya.
  • Telephone number: 0203222111, 0719012111
  • Email: [email protected]

Experts: Additional taxes not working, bad for businesses


This, they argue, is reflected in new data that shows less than five months to the close of the current financial year, the Kenya Revenue Authority (KRA) has collected less than 50 per Cent of its tax collection target. 

New data from the National Treasury contained in the latest Kenya Gazette notice dated January 19, 2023 suggests that the taxman may yet again be fall short in its tax collection target despite additional taxes in the last Budget.  

According to Treasury, KRA had managed to collect Sh1.05 trillion as of December 29,2023, which loosely translates to about 40 per cent of the initial estimates of the Sh2.49 trillion it hopes to collect by the end of this financial year. 

This means KRA needs to collect Sh207.9 billion every month until the end of June to meet its target.  But going by the new data, it means KRA has averaged Sh175 billion every month, thus a deficit of Sh32.8 billion every month. 

Economists have said that the current tax policy approach is slowing down economic activities, and as a result, businesses are booking lower profits and thus paying less revenue. 

Economist Ken Gichinga from Mentoria Economics says this scenario beats the logic of the governments tax policies. 

“This calls for a review of our tax policy, particularly one that is not encumbered with administrative challenges. The requirement for manufacturers to remit excise duty within 24 hours is a very cumbersome tax policy and is very expensive,” said Mr Gichinga. 

He said that the government further needs to review its policies to ensure that it stimulates production as opposed to killing consumption. 

For the government to meet its tax revenue estimates, Mr Gichinga said, it needs to stimulate the economy by aiding consumption.

“They need to very urgently change their tax policy approach, especially on things like fuel,” he said. 

Institute for Public Finance Chief Executive James Muraguri said businesses need a predictable tax environment, which the Finance Act, 2023 does not provide. 

Like Mr Gichinga, Mr Muraguri said heavy taxation has made the business environment difficult.

“As an institute, based on what we see, we know that the tax reforms came too fast and too soon,” he said. 

Late last year, Kenya Breweries Ltd (KBL) urged the government to rethink its tax policy on spirits to address the issue of falling tax revenues.

The brewer termed the requirement to remit excise duty within 24 hours, “a nuisance and cumbersome.” According to the Institute for Public Finance (IPF), despite the introduction of new tax policies and administrative reforms, revenue has not yet fully recovered to its pre-pandemic levels and continues to come below target. 

Further, the report shows that while Income tax and Value-added tax (VAT) remain the most significant source of revenue, accounting to a total of 10.5 of the Gross Domestic Product (GDP), tax revenue performance continues to be below the potential revenue of 25 per cent of GDP as estimated by the International Monetary Fund (IMF), resulting in an 11.5 per cent deficit of GDP in the financial year 2022-2023. 

The government projects its revenues will grow significantly in the 2023-2024 financial year to a record high of 19 per cent of the GDP by F/Y 2025/2026, surpassing the 2014-2015 figures. This is far more optimistic than the World Bank’s forecasts. 

These projections are grounded on the additional tax measures and reforms the government is currently implementing. 

“The reforms include the increase in VAT on petroleum products from eight per cent to 16 per cent, the introduction of two personal and income tax bands, increase in turnover tax rate from 1 per cent to three per cent, increase in excise duty for certain goods, and introduction on the export and investment promotion levy on some imports,” IPF notes in its report. 

Another significant revenue measure is the introduction of a housing levy for construction of affordable housing, payable by employees and employers. 

Economist Eric Musau says the inability to meet tax revenue estimates is not unique to the Kenya Kwanza government. 

“Painful as they are, I’d say that the taxes are the medicine we needed as a county,” said Mr Musau. 

In the 2022-2023 financial year, KRA collected a total of Sh2.166 trillion in taxes, falling short of the target of Sh2.19 trillion that the National Treasury had set for the period. 

KRA, which has been under pressure from President Ruto’s administration to seal revenue leaks and boost State coffers to enable Treasury to wean itself off reliance on public debt, said last year that it targets to collect Sh2.768 trillion by the end of the current 2023-24 financial year and hopes to surpass the Sh3 trillion mark by 2025. 

In the past, revenue ambitions have typically led to higher fiscal deficits. 

Other than not meeting its tax revenue estimates, the government is looking at a possibility of defaulting on the Eurobond, which is due in June. IPF boss Mr Muraguri said repayment of the Eurobond could be a shock to the economy.

“We monitor fiscal consolidation measures, and the government has to remain true to that commitment, fiscal consolidation comes at a pain,” he said.

 “As we work towards consolidating our resources to meet our date obligation, we anticipate that there could be potential service delivery default by government.” 

Related Topics


Trending Now


Popular this week