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Revenue collection nears trillion mark on VAT Act, trade

njiraini

Kenya Revenue Authority commissioner-general John Njiraini (centre) during a press briefing on revenue performance for the year 2013/2014 financial year at Times Tower in Nairobi July 15. Photo/Salaton Njau

The scrapping of value added tax (VAT) privileges and increased trade activity pushed revenue collection in the past financial year to nearly Sh1 trillion even as economic growth decelerated.

The Kenya Revenue Authority slightly exceeded its collection target of Sh963.7 billion based on the downward revised target informed by a weaker economic growth outlook.

The Treasury had initially set a revenue collection target of Sh973.5 billion. The original target would have seen KRA underperform by one per cent.

The Sh963.8 billion collected in the review period represents a 20.4 per cent growth — against single-digit economic expansion — more than the Sh800.5 billion recorded the year before.

KRA’s performance was driven by reforms in the consumption tax that saw the government scrap VAT exemptions on more than 400 items effective October last year.

This saw the introduction of the consumption tax on a wide range of items, including bread, milk, books, newspapers, transport, petroleum and paraffin.

“There was a strong performance in VAT due to the reforms undertaken,” commissioner-general John Njiraini told a press briefing on Tuesday.

KRA said that VAT’s contribution to total tax revenue rose to 24.2 per cent in the review period from 22.9 per cent a year earlier. In absolute terms, this represents a Sh50 billion jump to Sh233.2 billion.

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The taxman also benefited from a double-digit growth in customs revenues as exports and imports picked up following a peaceful General Election in March last year.

Customs revenues rose 28.3 per cent to Sh331.8 billion in the review period compared to Sh258.7 billion a year earlier. This has been linked to a rebound in Kenya’s trade volumes — exports and imports — which have risen steadily from Sh165.7 billion in July last year to peak at Sh198.3 billion in May.

Taxes paid by medium and small firms rose 19.6 per cent to Sh197.3 billion as large taxpayers saw their contribution jump 15.3 per cent to Sh431 billion.

Mr Njiraini said that KRA will focus on recruiting more taxpayers and enforcing compliance among large firms to grow collections in this fiscal year. He said KRA is particularly keen on curbing tax avoidance by multinationals which pay lower taxes through transfer pricing.

The taxman is also deepening enforcement of excise taxes among cigarette and alcohol manufacturers to check revenue leakages.

The measures are part of KRA’s strategy to meet the new target of Sh1.1 trillion set by the Treasury for the current fiscal year.

The government is betting on the cash to help fund its Sh1.7 trillion budget. It remains to be seen if the Treasury will increase taxes in its looming review of the income and excise taxes to be presented to Parliament.

The Sh1.1 trillion target was anchored on projections of a 5.8 per cent growth in GDP this year, with a slowdown in economic expansion threatening to hurt actual revenue collections.

The economy grew by 4.1 per cent in the first quarter, down from 5.1 per cent in the same period last year, with insecurity and drought seen hurting economic output in the rest of the year.