KRA misses tax targets by Sh63bn on job, pay cuts

The Kenya Revenue Authority (KRA) posted a Sh62.95 billion shortfall on its payroll and consumption tax collection targets for three months to September, hurt by sustained employee layoffs by firms affected by Covid-19 disruptions.

Fresh Treasury data shows that the taxman’s joint collection from pay-as-you-earn (PAYE) —which is deducted from workers’ earnings — and consumption levies comprising excise duty, value added tax (VAT) and import duty amounted to Sh225.14 billion in the quarter to September against a target of Sh288.08 billion.

“The decline is attributed to the difficult operating environment due to the Covid-19 pandemic which has been adversely affecting revenue performance from March 2020,” the Treasury says in the quarterly report.

VAT collection posted the worst performance, missing the target by 27.19 percent while receipts from PAYE, excise and import duty were off the mark by a margin of 21.11 per cent, 16.85 per cent and12.06 per cent, respectively.

Payroll taxes amounted to Sh71.56 billion in the July-September period, the provisional data published by the Treasury shows, missing the target by Sh19.16 billion.

Covid-19 containment measures saw firms scale down operating hours, which in turn hit their sales resulting in reduced earnings. As a result, companies opted to control their operating costs by trimming their workforce, chopping salaries and effecting unpaid leave policies.

An estimated 287,481 Kenyans lost their jobs in the first three months of the year alone on Covid-related disruptions, according to data by the Kenya National Bureau of Statistics (KNBS), with more layoffs taking place in the successive months as the effects of the pandemic continued to hit home.

The slump in revenue receipts was worsened by tax reliefs offered by the Treasury Cabinet Secretary Ukur Yatani from April to cushion businesses and workers from the economic shocks of Covid-19 pandemic.

The Treasury data shows that VAT receipts -- whose rate was reduced to 14 from 16 per cent in April – underperformed the target by Sh31.02 billion, reflecting an eroded consumer purchasing power.

VAT on domestic purchases underperformed by Sh20.03 billion to Sh41.15 billion in the July July-September 2020 period, a significant 30.8 per cent compared with a year earlier.

Receipts from VAT on imports came in marginally higher at Sh41.91 billion, bucking the trend where the levies on domestic goods and services are historically larger.

The VAT on goods and services from abroad, however, still fell short of the goal by Sh10.99 billion and represented a 9.5 per cent decline compared with a year ago. “In 2020, the Kenyan economy has been adversely affected by the outbreak of the Covid-19 pandemic and the swift containment measures, which have not only disrupted the normal life and livelihoods, but also to a greater extent businesses and economic activities,” the Treasury report says.

The Treasury data further shows that the impact of the revenue under-performance was relatively lower on excise duty — the bulk of which comes from sale of alcohol and cigarettes.

The KRA collected Sh47.35 billion in excise taxes on 31 excisable goods in the three-month period through September against a goal of Sh56.95 billion.

This represented a modest 4.8 per cent fall at a time when bars and nightclubs remained shut, only opening from late September and before the duty was raised 4.94 per cent to reflect average inflation from October.

Taxes on imports, which were partly boosted by easing of international trade restrictions, amounted to Sh23.17 billion — a shortfall of Sh3.18 billion and a 10 per cent drop year-on-year.

Payroll taxes could get a boost in the third quarter starting October with the Stanbic Bank Kenya’s Purchasing Managers Index (PMI) — a monthly measure of private sector activity such as output, new orders, employment and backlogs — suggesting firms started increasing employees for the first time since February.

There are, however, growing fears of fresh lockdown measures on spiralling new cases of coronavirus infections which could reverse the gains made over the last two months.

Already the UK, a key buyer of Kenya’s fresh produce, has announced a second round of shutdowns from Thursday, largely affecting brick-and-mortar retail, travel, entertainment and leisure firms due to the second-wave Covid-19 surge.