The Kenya Revenue Authority (KRA) should set its collection targets based on market realities to help keep the country’s expenditures in control, tax experts said.
In proposals to the 2023/24 Budget, consultancy firm Ernst and Young (EY) analysts, on Tuesday, proposed changes in Kenya’s tax administration to hand KRA an independent office that would advise on revenue potential.
“Areas to be reformed include KRA to work independently of the Treasury, especially on the budget-making process, to have an independent office that advises on economic/branding aspects of revenue collection, for example, closure of entities and bad publicity. This has an impact on Kenya as an investment destination,” said Francis Kamau from EY.
The Treasury has come under criticism over the years for budgeting for funds that were yet to be collected by the KRA — often leading to unfunded or abandoned projects and programmes or borrowing to cover for shortfalls.
The government is facing a revenue shortfall of Sh714.97 billion just three months to the close of the financial year after the KRA struggles to meet targets it had been set for —an indication of risks of borrowing.
The KRA collected Sh1.393 trillion in taxes in the nine months to March 2022, against a full-year target of Sh2.108 trillion, meaning it would have to collect at least Sh238.3 billion every month to June to cover the shortfall.
KRA began the current financial year on a low note by collecting Sh130.6 billion in taxes in July, which remains the lowest amount collected in a month in the 2022/23 financial year.
The taxman then collected Sh149.62 billion in August, Sh184.94 billion in September, Sh142.75 billion in October, and Sh150.63 billion the following month.
The consultancy also proposes that to net taxpayers who have historically not paid taxes — mainly in the informal sector and high-net-worth individuals such as those with idle lands — counties and the national government should find a working relationship.
“Central and county government symbiotic relationships (such as) revenue collection by the county government on behalf of central government at a commission and county government identification of tax revenue leakages,” said Mr Kamau.
The firm also observed that in President William Ruto’s first original budget in office, his administration faces various challenges including a bloated government due to Chief Administrative Secretaries’ appointments, and low funding to key sectors such as Health and Agriculture.
The government proposed a Sh3.63 trillion budget for 2023/24, constituting Sh1.48 trillion recurrent expenditure, Sh766.9 billion development expenditure, Sh385 billion county transfers, and Sh991 billion Consolidated Fund Services (CFS) budget.