The State has revised downwards its target for income taxes from corporations by Sh20.6 billion, reflecting a tough business environment that has seen the National Treasury craft its second mini-budget.
In the financial year ending June, the State projects it will collect Sh471.4 billion in corporate income tax, a drop from an earlier forecast of Sh492 billion, a new Treasury document shows.
Most of the tax heads the Kenya Revenue Authority (KRA) collects, known as ordinary revenues, have been revised downwards pointing to a slump in the economy.
The target for pay-as-you-earn, paid by permanent employees, has also been revised down to Sh1.6 billion, with the KRA on course to miss its target for the financial year 2023/24.
Another tax head that has been revised down significantly is the value-added tax (VAT) which is charged at a standard rate of 16 percent.
In the year to June, the KRA is projected to collect Sh323.6 billion from VAT on domestic goods and services, a drop of Sh7.05 billion.
This points to a slowdown in consumption, as the tax is charged on sales. The VAT on imported products has, however, been retained at Sh283.4 billion. The target for excise duty was reduced by Sh5.4 billion to Sh295.6 billion.
Firms are staring at additional pressures on their bottom line on the far-reaching revenue-raising plan in which the Treasury seeks Sh211 billion in additional revenue.
The World Bank, in a recent review of the Kenyan economy, said the new tax measures in the Finance Bill might depress consumption by firms and households.
“Private consumption is expected to remain on a robust growth path, although it will be dampened in the near term by…ongoing tax reforms to boost revenue and sustain fiscal consolidation,” said the World Bank in its 27th Kenya Economic Update.
Businesses are also staring at additional expenses should the proposed 1.5 percent Housing levy contained in the Finance Bill 2023 be approved by the National Assembly.
In May input prices for Kenyan firms rose to an unprecedented level owing to the depreciation in the exchange rate and high fuel prices, according to a Purchasing Manager’s Index (PMI) by Stanbic, a commercial bank.
PMI is a barometer for the health of the private sector. It measures input prices, output prices and staffing levels of Kenyan firms in a month.
“The Stanbic Bank Kenya PMI showed the private sector slumping further in May, with the headline index increasing but nevertheless remaining in contraction,” Mulalo Madula, Economist at Standard Bank, the parent firm for Stanbic.
“Inflationary pressures meant weak demand; new orders declined, as did output in the manufacturing and wholesale and retail sectors. Input prices are now at their highest since the survey began in 2014 as the KES depreciated further, which increased import costs,” added Mr Madula.
