Markets & Finance

Treasury faces cash crunch as KRA tax income falls short


The Treasury Building in Nairobi. The Kenya Revenue Authority says it had collected Sh342 billion in taxes as at December, which is less than half of the Sh817.5 billion target for the 2012/2013 Financial Year. Photo/File

The Kenya Revenue Authority (KRA) collected Sh342 billion in taxes at the end of December, less than half of the targeted total of Sh817.5 billion for the current financial year.

The amount collected in the first six months of the year is equivalent to 41.8 per cent of the full-year target, which points to possible expenditure cuts and more borrowing by the Treasury to plug the gap.

“The under-performance in ordinary revenue was reflected in all the major tax heads including VAT, excise duty and PAYE,” said the Treasury in its latest budget policy statement published last week.

As at the end of November the taxman was Sh54.6 billion behind the target set by the Treasury, and the shortfall is expected to have expanded even further as the December totals were still below the November target of Sh353.2 billion.

The Treasury is aiming to raise Sh1.2 trillion to fund the national budget but had raised Sh484.2 billion by December including non-tax incomes such as loans and grants, which are also below the half year mark.

READ: Githae puts Kenyans on notice with Sh1 trillion tax demand

The Value Added Tax (VAT) Bill which the Treasury had pegged its hopes on to widen the range of taxable goods was set aside by MPs to pave the way for debate and passage of Constitution-related Bills indicating the challenges of meeting the annual target.

“To meet the target will be hard as they expected to raise more than Sh50 billion from the new VAT Bill, however, major collections will come in April because for most companies their financial years end in December,” said Nikhail Hira, a managing partner at audit firm Deloitte and Touche.

READ: Parliament asked to review VAT Bill for higher taxes

President Kibaki is also yet to sign the Finance Bill, denying the Treasury legal backing required to collect taxes introduced by Finance minister Njeru Githae through amendments made in November.

To meet the shortfall the Treasury has been forced to borrow more from the domestic market, with the cumulative local borrowing as at end of November surpassing the target by Sh31.8 billion to stand at Sh103.2 billion against a target of Sh71.3 billion.

“The government will step up efforts on tax administration and mobilisation of revenue to eliminate leakages and increase revenue collection as well as rationalise and even cut some expenditure so as to minimise increase in domestic borrowing,” said the Treasury.

In the recently passed Supplementary Budget, Mr Githae raised Sh14.1 billion from expenditure cuts allowing the Treasury to only draw Sh58.8 billion from the Consolidated Fund to meet shortfalls arising from additional spending.

Salary awards to teachers, lecturers, health workers and police officers amounting to Sh30 billion and expenditures related to implementation of the Constitution together with the security operations in the country and Somalia raised spending.

Withdrawal of funds from the Consolidated Fund has continued to lag behind, with 40.6 per cent of the funds disbursed to the line ministries. The Treasury, however, said that the pace of absorption was higher than last year’s.

By end of November the development expenditure financed with domestic resources were below target by Sh13.2 billion while those financed with foreign resources were below target by Sh37.3 billion.

To bridge the gap the minister also introduced new taxes, key being a 10 per cent excise duty on commission charged for mobile money transfer services, but which are yet to take effect after President Kibaki rejected the initial Finance Bill in which they were included.

The President rejected the Bill after MPs made amendments awarding themselves Sh2.2 million each as a send-off package. The Treasury, however, allotted more funds to the taxman to improve his efficiency in revenue collection.

KRA has set its eyes on large taxpayers with reports of ongoing audits at most companies, especially those in the flower industry.

Mr Hira also noted that economic activity was expected to slow down in the next two months due to election uncertainties, a factor that may dampen tax collection efforts of the authority.

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