Treasury faces funding headache as revenue falls short by Sh93.8bn

Government revenue for first nine months of the year fell short of target by a significant Sh93.8 billion, signalling looming funding difficulties.

The National Treasury had targeted revenue and grants of Sh874.5 billion, but realised Sh780.7 billion, leaving a gap of Sh93.8 billion.

While grants were Sh25.83 billion short, the largest gap was the Sh67.94 billion in revenue due from various ministries and departments (called appropriations-in-aid or A-I-A) besides taxes.

The cumulative revenue collection —excluding grants— by the national government for the period July 2014 to March 2015 amounted to Sh761.4 billion against a target of Sh829.3 billion, said the latest Treasury review of implementation of the 2014/15 Budget.

“This represented an underperformance of Sh67.9 billion mainly due to shortfalls in A-I-A collection, income tax, VAT, excise duty and import duty,” said the Treasury review.

Of the revenue items, the A-I-A had the single-highest shortfall relative to the target at Sh31.6 billion in the nine-month period, bringing in only Sh39.1 billion.

“The A-I-A under performance reflects the persistent problem of under reporting, especially of the universities collection which is not adequately captured in the ministry’s expenditure return for the period under review,” said the Treasury.

The second largest deviation from target was in the grants by donors totalling Sh25.8 billion, below target of Sh45.2 billion meaning less than half of the expected cash was received in the nine month.

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Experts at the Institute of Economic Affairs (IEA) recently warned against factoring promised donor funds as they might not be disbursed in the financial year.

Reasons for lack of disbursement include failure by the Treasury to release its contribution (also called counterpart funding) for co-sponsored projects and also the government being slow to meet conditions set by donors.

The third largest shortfall came in the form of pay-as-you-earn taxes, below target of Sh220.5 billion by Sh21.7 billion.

For the nine months to March, experts also attribute the low collections to slow economic growth and probable leakages.

“The A-I-A tends to be under-reported. This causes the collections to fall below the target quite often. When money is collected and used at source, there is a high possibility of leakage or corruption,” said John Mutua, a budget expert with the IEA.

Mr Mutua said some government officers fail to report collection within their departments or agencies to get the Treasury to plug the gap.

“Obviously chances of cash being diverted once it is used by the various ministries or departments are very high,” said the IEA analyst. In the 2012/13 fiscal year, the Auditor-General reported that the proper usage of over Sh300 billion could not be ascertained.

Mr Mutua said the performance of the economy appeared not to be as good as had been initially anticipated, therefore contributing to low tax collections as witnessed in regard to PAYE.

“If the economy fails to perform well, then you can expect tax collections to fall below target. We noted that the 2013/14 PAYE collections had exceeded target partly due to the recruitment in the counties. For the nine-month period, it is not quite clear why the PAYE should fall unless the economy failed to perform or there were challenges with the system of its collection,” said Mr Mutua.