Treasury gets boost from KRA ahead of Eurobond sale

The taxman has hit the half-year revenue collection target, helping to calm the Treasury’s nerves ahead of the expected sale of a Eurobond slated for the first quarter of the year.

The Kenya Revenue Authority (KRA) Tuesday announced that it had collected Sh600 million more than the Sh470.2 billion target set for it by the Treasury in the first six months of the 2013/14 financial year.

“Strong VAT growth driven partly by new legal provisions and tighter enforcement of valuation procedures focusing on risk-prone cargo were among the factors that contributed to the improved performance,” said KRA Commissioner-General John Njiraini while speaking to the press at their Times Tower headquarters on Tuesday.

The higher revenue collection will help to calm the Treasury’s nerves as it seeks to convince international investors to back its Sh172 billion ($1.5 billion to $2 billion) sovereign bond.

The 2013/14 national Budget of Sh1.6 trillion had a deficit of Sh330 billion that was to be partly financed from the sale of the international bond in addition to domestic borrowing.

KRA’s full-year target is Sh973.5 billion, with Sh502.7 billion more expected to be raised between January and June.

“We see KRA’s performance as a positive thing because the government will have more money to spend to achieve development expenditure targets, especially given that we are also raising funds through the sovereign bond,” said Eric Musau, a research analyst at Standard Investment Bank.

READ: KRA tax collection exceeds first half target

The Jubilee government has lined up multi-billion dollar projects under the Vision 2030 development blueprint as well as its campaign manifesto, such as the free laptops for school children and irrigation of one million acres of land.

Revenue growth in the first half of the fiscal year was driven by increases in customs duty collection by 28.8 per cent to Sh168.5 billion against a target of Sh163.7 billion.

Domestic taxes rose by 21.3 per cent to Sh300.5 billion, though this was slightly lower than the Sh304.5 billion provided in the 2013/14 Budget. Improved corporate tax installment remittances in September and December 2013 also contributed to the growth in revenue.

In the first half of the year, there was an increase in value added tax (VAT) for customs driven partly by the new legal provisions implemented from last September.

But growth in domestic VAT payments was slower as companies which had tax credits were exempted from paying until they exhaust them.

However, the VAT performance could have been better if it were not for suspected under-valuation of some goods — previously zero-rated by traders who were out to ensure they paid low VAT to maintain their profit margins.

“Investigations reveal possible undervaluation of previously zero-rated imports especially computers and mobile phones. Possible motives include attempts to maintain previous market prices. Ongoing interventions are focusing on risk profiled imports and importers,” said Mr Njiraini.

Mr Njiraini said he expected the impact of the VAT Act 2013 would be felt in the second half of the fiscal year when companies will have exhausted their tax credits.

The Treasury has factored in an extra Sh10 billion into the 2013/14 budget to come from the VAT collections following the enactment of the law.

The new Act is also intended to reduce VAT refunds which were accumulating at the rate of Sh600 million per month before last September.

The Commissioner-General said the VAT refunds have stabilised as they now stand at Sh29 billion, close to the level at which they were last September.

“The VAT refunds have stabilised because of the new Act. We are looking forward to clearing this backlog and we have entered into discussions with the Treasury on how to address it,” said Mr Njiraini.

READ: New VAT law set to reduce refund claims by Sh600m

During the same press briefing yesterday, the Commissioner for Small and Medium Enterprises Alice Owuor said the authority faced a challenge with the county governments as money for payment of workers’ salaries was delayed and therefore it could also not get the pay as you earn (PAYE) remittances for a while.

“We receive Sh200 million a month from each county, but there was a delay of one or two months in the first half of the year and this affected collections from the counties,” said Ms Owuor.

Mr Njiraini said collection from import declaration fees has been consistently below target. “We have put up an interdisciplinary team to find out what the problem is and deliver a solution,” said Mr Njiraini.

KRA has embarked on initiatives to reform the management of several aspects of customs, including licensing of clearing agents to curb evasion.

Mr Njiraini said the authority was increasing the capacity of the market surveillance unit, having recruited 50 members of staff last December and was now set to have another 50 by June this year. The plan is to raise the number to 300 staffers.