Rising inflation and high oil prices could dim the country’s 2011/12 short-term revenue collection prospects despite a significant growth realised last year.
Kenya Revenue Authority said Tuesday it collected tax revenues amounting to Sh634.9 billion in the 2010/11 fiscal year compared to Sh 534.4 billion the previous year, representing an 18.8 per cent growth.
Statistics, however, show the total revenue collection for 2010/11 was Sh6.3 billion — about one per cent — less than the initial target of Sh641.2 billion set by the Treasury.
KRA commissioner general Michael Waweru, however, said the collection target had been revised to Sh630.7 billion by the Treasury in view of the external shocks that have stymied growth in the economy.
The new figures were also in line with revisions on the economic growth rate which has proportional relationship with the amount of taxes that the authority can harness.
Against the revised targets, KRA overshot its expectations for 2010/11 by Sh4.3 billion.
The agency attributed the growth in revenue collection in the period to June to an improved economic growth during the period.
All revenue departments registered growth in 2010/11 compared to the previous year, KRA said, with the highest growth being registered by the Domestic Taxes Department that collected Sh408.7 billion in 2010/11 compared to Sh338.1 billion the previous year.
The Customs Services Department collected Sh223.4 billion for the fiscal year ended June compared to Sh193.7billion in 2009/10. Collections from the Road Transport Department totalled Sh2.6 billion last year compared to Sh2.4 billion realised in 2009/10.
Mr Waweru said a raft of policy measures implemented by the government during the fiscal year, heavily affected overall collection. “Despite the strong revenue growth, several tax heads were adversely affected by policy changes and the changed economic environment,” he told a media briefing.
The official said the reduction of taxes on petroleum products in a bid to cushion Kenyans against high oil prices hurt revenue collection from the petroleum sector in 2010/11.
Finance minister Uhuru Kenyatta in April cut excise duty on kerosene, by 30 per cent. Kerosene is predominantly used for cooking and lighting by the poor.
Duty on diesel was lowered to 20 per cent to ease transport and tilling costs, especially in farming. The duty charged on kerosene was altogether withdrawn in the budget read last month. Mr Waweru also said the ongoing price wars in the telecoms sector had also hit revenue collection on account of lower tariff charges to which an excise tax of 10 per cent and VAT of 16 per cent applies.
“Excise taxes on cigarettes were adversely affected following a decision by Parliament to peg its computation on retail prices which resulted in an estimated revenue loss of 2 billion shillings during the fiscal year,” he further claimed.
The official said rising inflation, a weakening currency and high cost of fuel may hurt revenue collection in the short term. The country’s year-on-year inflation rate rose for the eighth straight month in June to hit 14.49 per cent, propelled by higher food and power costs, according to data by the Kenya National Bureau of Statistics (KNSB).
“We are hopeful the economy would grow and boost our collection as well,” Mr Waweru said. KRA said 184,550 new tax payers were recruited in 2010/11, leading to Sh600 million in collections while an intensified debt management programme saw the recovery of Sh12.3 billion in arrears.
Mr Waweru said KRA in the ended fiscal year worked closely with the Committee on the Implementation of the Constitution (CIC) to ensure all provisions on taxation were implemented.
“One outcome of such an arrangement was the requirement that all State officers pay taxes on their salaries and allowances,” he said.
Among those affected by the new laws are public officers including the President, MPs, the Attorney General, Controller and Auditor-General and judges among others.
The officials have over the years enjoyed tax holidays that saw them take home a bulk of their hefty pay. These tax-free benefits, which KRA categorises as any income or allowance also included duty-free vehicle imports.
KRA last month warned public officials to pay taxes in line with the new laws or risk penalties including possible auction of their properties for not meeting their tax obligations. KRA has for instance slapped MPs with a demand note of an average Sh1.9 million each in arrears owed in unpaid taxes since the new laws came into effects. Some legislators have obliged and paid up while others are still opposed to KRA’s demands.
“The law is very clear on taxes and anyone opposed to payment should turn to the Supreme Court for interpretation,” Mr Waweru said.
KRA estimates that the Parliamentary Service Commission (PSC) alone would remit about Sh700 million in income taxes this year, including levies on car imports.