The report showing that tax collection dropped by 14.5 percent in the month of April, compared to the same period last year, should give government agencies food for thought even as we consider that the ultimate goal is for the State to strike a balance between public health measures and the economic responses to the Covid-19 global pandemic.
The shortfall could be an indication that the government is paying more attention to epidemiological dynamics of the disease than it is responding to its economic consequences. This should be reviewed to ensure that the country’s growth agenda does not suffer. The other consideration would be for the Treasury to review its spending plans to align them with receipts.
For starters, the performance of State’s revenue collection function is as good as the health of the private sector.
Numerous private firms have closed shops with workers losing their jobs, taking pay cuts or altogether going on unpaid leave for indefinite periods of time, all of which have conspired to depress tax collection.
As such, the drop in April tax collection can be viewed simply as a case of chicken coming back to roost even as lower taxes ease the financial burden on beneficiaries. Income taxes have dropped, not only as a result of recent fiscal reliefs but also due to slackened economic activity.
Just like closed firms which no longer submit corporate taxes, many households have lost their capacity to pay consumption taxes after bread winners lost jobs or cut back spending.
Similarly, sources of taxes such as customs can no longer be guaranteed, having slowed down in proportion to falling levels of export and import trade.
Without doubt, the tough epidemiological measures have played a key role in saving lives, and ensuring that Kenya does not suffer from the effects of the disease as some countries have.
However, we must seek new ideas to reopen the economy and jumpstart the private sector. It’s encouraging that one of the priorities awaiting Parliament, which is resuming after a one-month recess, is discussing President Kenyatta’s Sh53.7 billion stimulus package. The State needs to implement and expand such rescue packages to hasten economic recovery.