Economy

Tax collections fall Sh100bn as economy reels from Covid

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Times Tower. FILE PHOTO | NMG

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Summary

  • The Treasury says the tax cuts introduced in April to cushion businesses and families from pandemic blows were no longer sustainable, citing persistent revenue collection shortfalls which have slowed implementation of government programmes.
  • The Treasury estimated on December 4 the government will have foregone about Sh65 billion by end of this month as a result of reduction of maximum income tax to 25 from 30 percent and a cut on value added tax to 14 from 16 percent.
  • Lawmakers will, as a result, on Tuesday cut short their Christmas holiday to debate and approve or reject a bill to withdraw the tax cuts on earnings and purchase of goods and services from next month.

Tax collections for five months through November fell Sh100.72 billion compared with a similar period a year ago, reflecting the impact of Covid-19 economic hardships that triggered a fall in company earnings, layoffs and cuts on levies.

Data published by Treasury secretary Ukur Yatani Friday showed the Kenya Revenue Authority (KRA) collected Sh527.73 billion in the July-November 2020 period, a 16.03 percent drop compared with Sh628.46 billion a year ago.

Monthly tax receipts have been falling since the beginning of this financial year in July compared with a corresponding period in 2019 amidst Covid-induced slowdown in economic activity.

Companies grappling with reduced revenues have also continued to shed jobs, cut salaries and sent workers on unpaid leave, further hitting KRA’ collections from sales and payroll tax.

The Treasury says the tax cuts introduced in April to cushion businesses and families from pandemic blows were no longer sustainable, citing persistent revenue collection shortfalls which have slowed implementation of government programmes.

The Treasury estimated on December 4 the government will have foregone about Sh65 billion by end of this month as a result of reduction of maximum income tax to 25 from 30 percent and a cut on value added tax to 14 from 16 percent.

Lawmakers will, as a result, on Tuesday cut short their Christmas holiday to debate and approve or reject a bill to withdraw the tax cuts on earnings and purchase of goods and services from next month.

“It is not lost that the tone following the mission visit to hammer a new IMF programme was loaded with ‘fiscal consolidation centered on raising tax revenues’,” analysts at Genghis Capital wrote in a note. “This, in our view, has added the layer of urgency in reversing the tax relief measures.”

Business lobbies such as Kenya Association of Manufacturers, Kenya Private Sector Alliance and Kenya Bankers Association have, nonetheless, urged MPs to shoot down the bill, arguing the return of pre-Covid taxes will hurt firms struggling to recover from the pandemic shocks.