Tax receipts have softened to a single-digit growth ending what was a post-Covid-19 lift in domestic revenue mobilization.
New data from the National Treasury actual revenues and net exchequer issues in six months to the end of December last year shows tax revenue grew by 9.6 per cent to Sh952.6 billion year over year from Sh868.8 billion a year prior in December 2021.
The slowdown in collection reverses a 29 percent growth in tax receipts which was registered between July 2021 and December 2021 when tax receipts swung up to Sh868.8 billion from Sh673.6 billion in six months to December 2020.
The double-digit growth in the tax receipts in the preceding half-year period was largely attributable to low-base effects as the Kenyan economy re-emerged from constraints brought about by restrictions to curb the spread of the Covid-19 pandemic including dusk to dawn curfews and the closure of bars and entertainment joints.
Receipts from taxes in the first six months of the 2020/21 fiscal year had for instance contracted by 13.6 percent to fall from Sh779.3 billion in a comparable 2019 period to Sh673.6 billion.
Tax receipts in the six months to December 2022 further trail pre-pandemic levels with the receipts having grown by 14.4 percent between July and December 2019, rising from Sh681 billion.
Last week, the National Treasury lamented shortfalls in revenue collection in the first five months of the 2022/23 financial year with total revenue having been recorded below targets for the period by Sh19 billion.
Ordinary revenue which represents netting from both tax and non-tax sources posted a shortfall of Sh32.2 billion.
The National Treasury has deemed the shortfall as detrimental to the goal of the government meeting its financing obligations for the fiscal year.
“This shortfall needs to be recouped to avoid hampering budget execution. Efforts are underway between the National Treasury and the Kenya Revenue Authority (KRA) to close the gap.
Payroll taxes posted the largest deviations to targets with pay as you earn (PAYE) for instance missing the back by Sh12.8 billion while corporation tax had an even wider deficit to the target at Sh17.6 billion.
Other tax heads including import duty, excise taxes and value-added tax (VAT) were also off-target by Sh2.9 billion, Sh5.7 billion and Sh30.4 billion respectively.
The slump in ordinary revenues was however partly offset by a Sh13.1 billion overperformance in ministerial appropriations in aid (AiA).
The lacklustre outcome in tax receipts is expected to leave KRA under pressure to meet its target of raising at least Sh2.071 trillion in tax revenues in the next six months to June.
Nevertheless, the exchequer is banking on changes in tax administration to lift the receipts and projects revenues to hit 17.8 percent of GDP in the 2023/24 financial year from 17.3 percent of GDP in FY2022/23.
Over the medium term, revenues are projected to hit 18 percent of GDP.
“Reforms under the revenue administration by KRA have been scaled up. The National Treasury, jointly with KRA, is making improvements on tax administrative measures in order to ensure revenue collection remains on target. These include; implementation of a new web-based improved VAT system; integration of KRA system with the betting sector and mapping of rental properties,” the National Treasury added.
“On the tax policy side, the development of the national tax policy and the medium-term revenue strategy (MTRS) which will strengthen revenue mobilization are at advanced stages.”
The new administration is also expected to ramp up pressure on KRA as it seeks to plug the ever-wide fiscal deficits in the budget through additional revenue collection.
For instance, President William Ruto in a nationally televised interview for instance outlined plans to collect an additional Sh500 billion in tax revenues by June with plans of doubling the tax revenue base over the medium term to 2027.