Poor tax mobilisation across nine months of the current fiscal year to the end of March has opened up a Sh270 billion budget hole, new disclosures show.
Submissions by the Treasury to Parliament reveal the shortfall in total revenues, which was primarily due to the poor performance of ordinary revenues or taxes.
“By the end of March 2024, total revenue collected including appropriations in aid (A-i-A) amounted to Sh1.855 trillion or 11.5 percent of GDP against a target Sh2.126 trillion (13.2percent of GDP) resulting in a shortfall of Sh270.7 billion (1.7percent of GDP,” the Treasury indicated.
Ordinary revenue collection amounted to Sh1.585 trillion or 9.8 percent of GDP against a target of Sh1.840 trillion over the same period.
The poor collections signal the slow outcomes of reforms geared towards improving domestic revenue mobilisation in the immediate and over the medium term.
The implementation of the Finance Act 2023, which included tax measures such as higher pay-as-you-earn rates for big earners had, for instance, been expected to boost revenue collection leading to a tax effort equivalent to 16.3 percent of GDP in the 2023/24 financial year.
Other measures taken to enhance domestic revenue mobilisation have included the strengthening of tax administration by the Kenya Revenue Authority through the use of technology to seal leakages such as enhancements of iTax and integrated customs management system and the use of the tax invoice management system.
Additionally, the government has focused on non-tax measures that ministries, State departments, and agencies can raise through the services they offer to the public, including the Ministry of Land, Immigration and Citizen Services.
The Exchequer is, however, at the early stages of implementing the national tax policy to improve the tax system’s administrative effectiveness, offer uniformity and clarity in tax laws, and control tax expenditures.
The missed domestic revenue targets have partly contributed to the slowdown in disbursements from the Exchequer, leaving the execution of the 2023/24 budget in jeopardy. Total expenditure and net lending for the nine months to the end of March amounted to Sh2.395 trillion against a target of Sh2.787 trillion, translating to a shortfall of Sh392.3 billion.
Disbursements to county governments stood at Sh239.1 billion against a target of Sh310.8 billion, a shortfall of Sh71.7 billion.
After the poor revenue performance, the Treasury has revised spending and collection estimates for the fiscal year to June downwards, a reflection of the mobilisation difficulties.
Total expenditures and net lending are now estimated to fall to Sh3.837 trillion from Sh3.981 trillion while total revenues are seen falling to Sh2.886 trillion from the prior estimate of Sh3.047 trillion, with ordinary revenues at Sh2.452 trillion.
Previously, the Treasury cut its budget estimates for the financial year starting July 1 to Sh3.92 trillion from Sh4.188 trillion after it assessed below-par revenue performance.
“Following the underperformance of revenues in the financial year 2023/24, the projected revenues in the approved 2024 budget policy statement (BPS) have been revised accordingly to reflect this reality on the baseline. Further, to remain on the fiscal consolidation path, there is a need to contain borrowing and rationalise expenditures to sustainable levels,” the Exchequer added.
Recurrent expenditures in the new financial year are expected to fall by Sh77.6 billion from prior estimates to Sh2.781 trillion, while the development spend will ease to Sh687.9 billion from Sh877.8 billion.
The combined cuts will, however, yield a lower fiscal deficit, reducing the government’s borrowing needs in the new cycle that runs to June 2025. Net foreign financing is estimated at Sh256.8 billion, while net domestic lending will stand at Sh257.9 billion.
