The Kenya Revenue Authority (KRA) missed its half -year tax collection targets by a massive Sh47.6 billion, signalling a possible widening of the budget deficit with far-reaching consequences on the economy.
Newly-released data indicate that the shortfall mainly arose from a dip in payroll taxes and delayed application of the Excise Duty Act 2015.
The Treasury said there was a huge shortfall in ordinary revenue collection made of a Sh26 billion deficit in Pay-As-You-Earn (PAYE) revenue and a Sh15.9 billion shortfall in Value Added Tax (VAT) collection from imports.
No actual half-year ordinary revenue targets have been published but the report says that by the end of December 2015, the total cumulative revenue, including Appropriations-In-Aid (AIA), amounted to Sh575.2 billion against a target of Sh642.9 billion, implying a total shortfall of Sh67.7 billion.
“Ordinary revenue collection was below target by Sh47.6 billion while A-I-A collection fell short of target by Sh20 billion,” the Treasury says in the latest Budget Policy Statement that reveals how harder financing the Sh2.1 trillion budget will be.
The shortfall in revenue performance is a continuation from the first quarter when KRA reported a Sh300 billion collection against a target of Sh328 billion.
The steep fall in payroll taxes is consistent with recent developments on the corporate scene where a number of big employers have laid off staff citing higher financing costs in the wake of a steep rise in interest rates and stiff competition from Chinese and Indian products.
The situation has been compounded by the fact that the government has also frozen the recruitment of non-essential staff.
The difficult operating environment facing the corporate sector has reflected in a steep increase in the number of publicly traded firms that have warned investors of an impending drop in earnings or even losses.
Up to 18 companies have issued profit warnings since last year, signalling a drought in bonus payments and, in some cases, retrenchments.
The list of public companies that expect a slump in earnings includes Liberty Kenya Holdings, Britam, Express Kenya, Standard Group, Sameer Africa, Atlas Development, BOC Gases, TPS Eastern Africa, Crown Paints, Standard Chartered, Uchumi Supermarkets, ARM Cement, Mumias Sugar, Car & General and East African Cables.
KRA has also blamed the missed collection targets on delayed roll-out of the Excise Duty Act 2015 from which the government sought to raise an additional Sh25 billion to help fund the Sh2.1 trillion budget.
The new tax law ultimately came into force in December, pushing up the prices of key consumer goods such as beer, juices, water, second-hand cars and motorcycles.
Beer prices went up Sh30 per litre, kerosene (Sh5.75 a litre), bottled water (Sh7 a litre), juice (Sh10 a litre) while a charge of Sh10,000 was imposed on imported motorcycles.
The new tax also affected cigarettes, which are now charged Sh2,500 per 1,000 sticks, up from Sh1,200, raising the price of a single stick by Sh1.30.
Treasury secretary Henry Rotich also imposed a Sh200,000 charge on all imported vehicles that are more than three years old and a Sh150,000 for newer ones — a departure from the previously 20 per cent duty charged on a vehicle’s value.
The Treasury said it had lowered its revenue projections for the financial year in the wake of weak performance in the first-half and adverse macro-economic factors.
“In addition, the revised projections take into account the impact of the delay in enactment of the Excise Duty Act 2015 that came into effect on December 1, 2015,” the Treasury said.
Revenue, including A-I-A, are now projected to fall short of the previous estimates by Sh46.9 billion, reflecting the expected Sh52.9 billion fall in ordinary revenues and a Sh5.9 billion increase in A-I-A.
“The downward revision in ordinary revenues is on account of projected shortfalls in Income tax (Sh37.5 billion), largely on account of PAYE and VAT (Sh14.1 billion),” the Treasury said.
KRA has recently stepped up its push for tax compliance and adopted diverse strategies, including the use of cargo scanners at the main ports of entry and crackdowns against those operating without excise licenses.
Three new cargo scanners are set to be installed at the Kilindini port beginning this month to curb contrabands and revenue leaks arising from falsified cargo declarations.
KRA has cargo scanners at key ports of entry, including Kilindini port, Jomo Kenyatta International Airport (JKIA), Moi International Airport, Mombasa, Eldoret International Airport, the Inland Container Depot in Embakasi and a few Container Freight Stations (CFSs).
The taxman has also started enforcing a directive requiring all beer packages, manufactured locally or imported, to have mandatory excise stamps affixed on them.
Excise tax is payable on production or supply of a service and to domestic output or imported products.
The tax is paid by the manufacturer or service provider, but is borne by the end user as part of the cost of the excisable product or service.
The law bars manufacturers or retail chains from releasing products into the market without an excise license.
Excisable products include beer, opaque beer, potable spirits and wines, ethyl alcohol, tobacco and tobacco products, polythene bags, juices and other non-alcoholic beverages, soft drinks (sodas), cosmetics and bottled water.
KRA is also preparing to conduct lifestyle audits on its employees to weed out those who have been colluding with tax cheats.