Treasury banking on VAT in Sh3.8trn revenue growth plan


Kenya Revenue Authority is banking on VAT as holding the greatest potential for growth in a bid to raise Sh3.8 trillion in revenues. FILE PHOTO | SHUTTERSTOCK

The Treasury is eyeing value-added taxes (VAT) as the segment with the highest potential for growth in its ambitious plan to expand revenue to Sh3.8 trillion by 2027.

In the next four years from July, VAT collections are expected to rise by 80.6 percent, the highest among the four major tax heads.

The taxman is expected to implement key administrative policies to support VAT performance, including fully rolling out the electronic Tax Invoice Management System (eTIMS), aimed at netting tax cheats.

VAT is projected to rise to Sh1.06 trillion by end of June 2027, compared to the target of Sh587.7 billion in the current fiscal year, according to the National Treasury’s 2023 Draft Budget Policy Statement.

“KRA will implement among others, the following measures: reduction of Value Added Tax (VAT) gap from 38.9 percent to 19.8 percent of the potential by fully rolling out electronic Tax Invoice Management System (eTIMS),” reads the BPS released last week.

The taxman was given a revenue target of Sh2.56 trillion for the upcoming 2023/24 fiscal year.

While income tax—which comprises corporate and Pay-As-You-Earn (PAYE) taxes—will still be the largest tax head, the gap between it and that of VAT is expected to narrow significantly in the next four years.

Income taxes are expected to increase by 72.7 percent to Sh1.73 trillion, while import duty is expected to grow by 76.9 percent to Sh258.1 billion.

Excise duty, which has progressively been expanded to include more products, will expand by 75.5 percent to Sh521 billion in the review period.

About 240,000 businesses are VAT-registered but only 106,000 entities file taxes while the rest are non-filers or nil-filers.

The revenue authority expects VAT collection to increase by as much as 45 percent upon implementation of e-TIMS, a new electronic register that captures and sends to the taxman all transactions, especially invoices, in real time.

This level of growth, KRA chairperson Antony Mwaura said in an ad on Monday, was witnessed in Rwanda when the country rolled out its own invoicing solution.

“We expect similar or higher growth in VAT collection upon full implementation given the compliance gaps we are addressing,” said Mr Mwaura.

The new registers will be linked to KRA’s systems through the internet, allowing the taxman to scrutinise all deals at the trader’s point of sale.

KRA currently has 61,000 registered on TIMS, against the active registered taxpayers of 106,000.

“It is, therefore, expected that the remainder of 45,000 VAT-registered taxpayers will be prioritised for the new system,” he said.

Ninety-four percent of large businesses making over Sh1.3 billion in revenue every year had acquired the ETRs and integrated with the authority’s system ahead of the effective date while 82 percent of medium businesses were compliant.

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