The Kenya Revenue Authority offices at Times Towers in Nairobi. FILE
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Cabinet secretary Henry Rotich admits taxman’s fees of 1.65 pc of revenue collected yearly is inadequate.
This is the first admission by Treasury that the commissions it pays KRA are inadequate, a thawing to a tiff that faced four finance ministers over the past four years, including Uhuru Kenyatta, who is now President.
Treasury has eased its financing row with the Kenya Revenue Authority (KRA) after it agreed that the commission it paid the tax man for collecting revenues was inadequate.
Cabinet secretary Henry Rotich told Parliament that the Treasury ought to increase the commission it pays KRA to two per cent of revenues collected each year.
Treasury has declined to offer the authority a bigger portion of the revenues, a move that has seen the Auditor General Edward Ouko warn that KRA will be unable to carry out its mandate as it continued to run beyond its means.
Last year, KRA had wiped out more than Sh1.5 billion of accumulated reserves between 2009 and 2011, prompting Treasury’s U-turn.
“The National Treasury concurred that the allocation to KRA at 1.65 per cent of national revenue was less than adequate and it would be ideal to increase this to two per cent,” noted minutes of a meeting between Mr Rotich and the Parliamentary Budget committee.
This is the first admission by Treasury that the commissions it pays KRA are inadequate, a thawing to a tiff that faced four finance ministers over the past four years, including Amos Kimunya, Njeru Githae and Uhuru Kenyatta, who is now President.
The battle was started by former KRA head Michael Waweru, who retired last year, and has now been left in the hands of the current head John Njiraini and Mr Rotich, who is mandated to set the agency fee.
The taxman reckoned it could cut back on its upgrade plans to preserve funds, slowing down collection of taxes.
This comes as the Treasury has set the bar higher for the taxman with a target of Sh880 billion in the next financial year, 22 per cent higher than the current year’s target, and most ambitious target in the agency’s history.
The performance of KRA is critical to Mr Kenyatta’s quest to meet the promises he made on the campaign trail, partly informing the reason Treasury is willing to concede in the financing row.
It is estimated that KRA’s accumulated fund will fall into the negative territory in the next two years should it fail to get additional resources from the Treasury — which owes it Sh2 billion from bonuses earned since 2004. Mr Ouko last year warned that KRA was in the red after posting negative results for four consecutive years.
“The authority’s ability to carry out its mandate in the long run is, therefore, under threat,” said Mr Ouko in his first review of KRA books last year.
The taxman returned a deficit of Sh121.3 million in the year to June last year compared to a deficit of Sh426 million in 2010/2011, cutting its reserves to Sh548 million.
In the year to June last year, it was allocated Sh10.6 billion by the Treasury (1.5 per cent of the tax collections) up from Sh10.1 billion the previous year.
But its swelling costs led by wages — which rose to Sh8.4 billion from Sh7.3 billion in June 2010 — have continued to run ahead of its revenues in the past four years. Its total costs stood at Sh12 billion in the year to June from 2010’s Sh10.6 billion.
