Tax collections for the first quarter of the current financial year increased at the slowest pace since 2018, excluding the pandemic year, despite enforcement of new taxation measures by the William Ruto administration.
The Kenya Revenue Authority (KRA) collected Sh514.26 billion in tax receipts in the three months through September, data published by Treasury Cabinet Secretary Njuguna Ndung’u showed Friday.
The receipts represent a 10.55 percent growth over nearly Sh465.20 billion in a similar period a year earlier when taxes increased 11.60 percent.
Excluding the pandemic year (2020/21) when the Treasury gave tax reliefs in the first half, the rate of growth was slowest since 2018.
The increment in the first quarter of the 2021/22 fiscal year was 31.21 percent to Sh416.82 billion, largely on the low base effect the previous year when the collections had dipped 14.68 percent on tax reliefs amid a pandemic-induced drop in earnings.
This came in a quarter after the KRA started enforcing new taxation measures such as doubled value-added tax (VAT) on fuel to 16 percent and 1.5 percent housing levy that is deducted from the gross pay of all workers, matched by employers. The enforcement of the housing levy is seen as a form of double taxation on personal earnings as the KRA uses the same gross to also deduct pay-as-you-earn.
The slowed growth amid new taxes signals tough economic conditions, which have seen monthly corporate sales fall in July and September on the back of elevated prices of goods and services amid largely stagnant pay.
Consumer demand fell in July and September, according to findings of Stanbic Bank Kenya’s Purchasing Managers Index (PMI), prompting firms to cut output.
The composite index measures month-on-month private sector activity such as output, new orders, and employment.
“The decline in [business] momentum is attributed to pump prices having been increased by the Energy and Petroleum Regulatory Authority by an average of Sh23.80, and cost-of-living pressures arising from increased taxation as well as likely further tax increases, per the newly released medium-term revenue strategy,” Christopher Legilisho, an economist with South African-based Standard Bank, the parent firm of Stanbic Bank, wrote in the PMI report for September.
Furthermore, rising interest rates have been weighing on consumer demand, business levels and expectations.”
September marked the beginning of the second round of the Ruto administration’s painful taxation measures in Finance Act 2023, collections which will be wired to KRA by the 20th of this month.
These included Export and Investment Promotion Levy on the importation of cement clinker, iron, and steel as well as paper and paperboard and digital assets tax on the online sale of content and music, among other digital assets.
The enforcement of new taxation measures has traditionally been slow at the beginning of the financial year as the KRA and taxpayers update their systems to reflect the new changes in taxation.
The new painful taxes, which have hit salaried workers and importers hardest, are key in helping the Treasury achieve fiscal consolidation plans for the current year ending June 2024.
The austerities target is to reduce the hole in the budget – which is filled through borrowing – to 4.4 percent of gross domestic product from an estimated 5.8 percent in the year ended June.
“[On new taxes], we are only concerned about the impact of the high debt levels that we have. I know, sometimes, we think that there is a lot to cut on expenditure but you will be surprised to know… there is very little room for sharp expenditure cuts and we don’t want to cut development expenditure,” Central Bank of Kenya Governor Kamau Thugge said on July 17.
“So it’s really very important that we mobilise revenue so that we reduce borrowing so as to stabilise our debt going forward.”
President William Ruto has on several occasions said Kenya has the potential to mobilise Sh3 trillion annually in taxes.
“A huge obstacle to the realization of our national revenue target is that in practice tax administration has traditionally been a repressive, menacing affair which resembles extortion,” Dr Ruto said at a past event.
“This extinguishes taxpayer incentive and diminishes the prospect of an expanded tax base pulling Kenyan backwards from its national revenue potential and denying its citizens critical services and development programmes.”
