President Ruto tax push suffers blow with Sh13.9bn shortfall in Q1

Treasury Cabinet Secretary Prof Njuguna Ndung’u at a press briefing on November 10, 2022. PHOTO | DIANA NGILA | NMG

The Kenya Revenue Authority’s collections from consumption and income taxes for the first quarter of the year fell short of the target by Sh13.9 billion in an early setback to President William Ruto’s aggressive revenue mobilisation plan.

The taxman collected Sh459.5 billion from earnings by workers and companies as well as consumption levies, comprising excise duty, value-added tax (VAT) and import duty, according to provisional data released by the Treasury Thursday.

This was 2.94 percent, or Sh13.9 billion, short of the Sh473.2 billion tax target set by the Treasury for the three-month period through to September 2022. The underperformance is set to put the taxman under more pressure coming from a previous regime where it reported surplus collection and boasted exceeding tax targets by over Sh140 billion in a year.

Dr Ruto, who took office in September, has made it clear that implementation of his administration’s plan for “rapid and inclusive socio-economic transformation” of the economy depends on a “robust revenue growth rate and a well-managed budget deficit”.

Treasury Cabinet Secretary Njuguna Ndung’u the said the underperformance in tax receipts reflects the slowdown in economic activity due to drought and persistent global supply chain disruptions. “Tax revenue is very much dependent on the economic activity because you are taxing economic activity,” Prof Ndung’u said.

Companies largely reported depressed sales in the run-up to the hotly contested presidential vote in August and thereafter rising living costs, which have eroded purchasing power amid stagnant salaries.

Households and businesses are enduring the sharpest rise in the cost of living in five and a half years on the back of a biting drought, the worst in 40 years, that has hit food production and high energy costs because of disruptions in global supply chains.

Findings of Stanbic Bank Kenya’s Purchasing Managers Index (PMI), based on monthly feedback from a sample of about 400 corporate managers, have pointed to a broad-based slowdown in production across sectors. The Treasury data show receipts from all major tax votes, except import duty, fell short of the targets despite all registering growth of between 6.6 percent and 26.8 percent over a similar quarter last year.

Collections from pay-as-you-earn (PAYE) taxes— deducted from workers’ monthly income — were five percent below the Sh118.6 billion target, while deductions from the profit made by companies, co-operatives and trusts were 2.8 percent short of the expected Sh116.1 billion.

VAT receipts fell short of the Sh136.5 billion target by 1.5 percent, excise duty collections were off the Sh68.2 billion projections by 4.5 percent, while import duty receipts overshot the three-month target by 1.6 percent to Sh34.3 billion.

The data show that ordinary revenue — made up of taxes, levies, rent of buildings, fines and forfeitures— beat the target by 0.5 percent to Sh498.3 billion, helped by non-tax collections.

Overall, total revenue was Sh6.2 billion below the Sh557.9 billion budget after ministerial appropriations-in-aid fell short of Sh62.1 billion by 14.2 percent, according to the data released by Musa Kathanje, director of the macro and fiscal policy at the Treasury during the launch of the budget preparation.

“It is not an accident that revenue mobilisation, though improving, remains far below its potential. Taxpayer apathy is rife,” Dr Ruto said on October 28. “Potential and actual taxpayers are terrified of the Kenya Revenue Authority and several even traumatised by the sight of its officials.”

Dr Ruto has said tax compliance will be key in funding programmes aimed at empowering economically underprivileged groups through what he calls the “bottom-up economic model”. The President reckons there is “evidence of tremendous scope” to expand the active taxpayer base from slightly more than seven million in a country of more than 22 million voters.

“A huge obstacle to the realisation of our national revenue target is that in practice tax administration has traditionally been a repressive, menacing affair which resembles extortion,” Dr Ruto said earlier. “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.”

The President has said the KRA has the potential to raise Sh3 trillion in ordinary revenue this financial year ending June 2023, Sh538 billion more than the Sh2.46 trillion target set by the previous administration.

The Treasury has embarked on a fiscal consolidation aimed at slashing this year’s Sh3.3 trillion budget by Sh300 billion, targeting non-priority recurrent expenditures like travel, entertainment, training and publicity.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.