The Kenya Revenue Authority (KRA) is likely to miss the tax collections target for this financial year by Sh330 billion, the Parliamentary Budget Office (PBO) has warned.
PBO—the office that advises lawmakers on budget and economic affairs — attributed the anticipated miss to tax collections underperformance since July last year.
In the period between July last year and last month, the KRA collected 55 percent of the Sh2.49 trillion target, setting up the taxman for a race against time to raise Sh1.12 trillion in the remaining four months.
These collections were less than half (49 percent) of the original ordinary revenue target of Sh2.787 trillion that was set in the budget unveiled in June last year, the latest data by the Treasury shows.
The revenue miss forecast by PBO will be an equivalent of 13.2 percent of the targeted Sh2.49 trillion for the financial year and will further squeeze the ability of the Kenya Kwanza government to fund key development projects, in turn hitting efforts to create jobs.
“This trend (revenue miss in the first half) points to an overall deviation of 13 percent from the target, implying that by the end of June 2024, government revenues are likely to underperform by Sh330 billion,” PBO says in its latest review of the current budget and the medium-term plans.
“The divergence between anticipated and actual revenue presents a considerable hurdle, hindering the government's ability to fully execute key economic growth budget options for the financial year 2024/25 and the medium term 30 enablers.”
The fall in collections came against the backdrop of increased taxation that hurt consumption as hard-hit homes and businesses cut spending.
Value Added Tax (VAT) on fuel was doubled to 16 percent from July last year, triggering price increases on goods and services given the critical role of fuel and transport costs.
Expenditure on development projects was cut by at least half in the period in the wake of the thinning fiscal space, hurting the delivery of projects such as roads, water, and housing that are key to creating jobs given the intense human capital needed.
The government has in turn been forced to turn to borrowing in a bid to plug the financing deficits.
The Treasury borrowed Sh545.6 billion from the domestic market and Sh474 billion from external markets between July last year and last month, according to official data.
In the first half of the year, PBO data shows that the KRA missed targets for income tax by Sh88.1 billion, Sh29.1 billion in excise duty and Sh25 billion for VAT. The government plans to borrow Sh1.7 trillion from the local and foreign markets in the current financial year.
The PBO further called for a cautioned approach to the tax measures that the government introduces every financial year through the Finance Bill.
The KRA has in the recent past stepped up its efforts to deal with he rising tax targets in the middle of a tough economy. The taxman last week said it has averted tax losses amounting to at least Sh1 billion between July 1, 2022, and March 2024.
The achievement comes as a result of intelligence-led investigations and prosecution-guided actions by the KRA, leading to the arrest of more than 100 suspects linked to illicit trade and tax fraud.
A KRA report shows that it conducted more than 2,500 operations across the country during the period, seizing Sh2 billion illicit goods.
These operations targeted various commodities, including alcoholic beverages, ethanol, powdered milk, cigarettes, sugar, counterfeit excise stamps, water, drones, cosmetics, and food products.
Alcoholic beverages accounted for a significant portion of the seized goods, with taxes amounting to Sh623,208,483, followed by ethanol at Sh322,975,533, powdered milk at Sh114,206,174, and cigarettes (Sh111,985,729) among others.
"In the past one year successful interceptions led to seizure of illicit goods worth more than Sh2 billion. Between July 2022 and June 2023, KRA averted Sh839,744,734 in taxes from the 2,585 operations".
