Domestic VAT collection hits 4-year low on Covid

Tax collections on domestic sales have slipped to a four-year low, signalling the impact of Covid-19 woes on consumer spending.

The Kenya Revenue Authority (KRA) has reported a 7.9 percent decline in domestic value-added tax (VAT) receipts to Sh196.99 billion for the financial year ended June 2021.

This is the weakest collection from domestic VAT since the year ended June 2017 when the receipts amounted to Sh194.23 billion, marking the deepest erosion of consumer’s spending power in four years on the back of Covid-induced pay cuts and layoffs.

“The performance of the tax head was primarily affected by the Covid-19 pandemic, which saw businesses turnovers decline,” KRA commissioner-general Githii Mburu wrote in the statement on full-year revenue performance.

“The decline was also affected by a reduction of VAT from 16 percent to 14 percent.”

Consumers experienced a slight relief on the purchase of goods and services between April and December 2020 as Treasury secretary Ukur Yatani sought to temporarily boost consumer purchasing power in a weak economy, pounded by pandemic knocks.

Analysis of revenue data the Treasury published shows domestic VAT receipts plunged 28.38 percent to Sh85.87 billion in the half-year period through December 2020, missing the target by Sh39.06 billion.

KRA data, however, indicates the receipts recovered in the second half through June 2021, growing an estimated 18.22 percent year-on-year to Sh111.12 billion after Mr Yatani reinstated the standard 16 percent levy.

Firms have been battling to reverse depressed sales amid evolving Covid-19, according to findings of monthly Stanbic Bank Kenya’s Purchasing Managers Index — a gauge for month-on-month private sector activity.