Treasury’s tough task of raising Sh1.5trn in three months

Cabinet Secretary, National Treasury & Economic Planning Njuguna Ndung'u on May 17, 2023.  

Photo credit: File | Nation Media Group

The Treasury faces the difficult task of raising Sh1.58 trillion in revenues in three months to the end of June to fully fund its budget of Sh4.28 trillion for the current fiscal year.

Total exchequer receipts in the nine months to March stood at Sh2.7 trillion, according to new disclosures by the Treasury, resulting in a balance of Sh1.58 trillion or 36.9 percent of the approved budget.

So far, the exchequer has met 63 percent of its expected annual receipts covering Sh1.53 trillion in tax revenues, Sh52 billion in non-tax receipts and Sh1.1 trillion in domestic and external borrowing.

In contrast, the Treasury had only met 57.8 percent of its revenue requirements at a similar time last year with total receipts having stood at Sh2.09 trillion as of March 2023.

To meet its desired receipts, the exchequer is expected to mobilise at least Sh960.7 billion in tax revenues in addition to Sh590.8 billion in domestic and external borrowing.

The exchequer has, however, surpassed its target for other domestic financing having collected Sh3.5 billion by March against a Sh3.1 billion full-year target.

Difficulties seen recently in domestic tax revenue mobilisation could haunt the exchequer, hurting prospects of fully funding the 2023/24 fiscal budget.

In six months to December 2023, for instance, total revenue collected including appropriations in aid amounted to Sh1.31 trillion against a target of Sh1.45 trillion.

“This performance is attributed to a shortfall recorded in ordinary revenue of Sh186.2 billion at Sh1.08 trillion against a target of Sh1.27 trillion. All ordinary revenue categories recorded below target performance during the period under review except other revenue which surpassed its target by Sh3.9 billion,” the National Treasury noted in the latest quarterly economic and budget report.

Pay As You Earn (PAYE) collections had the largest shortfall at Sh56.5 billion having netted Sh256.3 billion against a target of Sh312.8 billion in the six months ended December 2023.

Meanwhile, corporation tax was off the mark by Sh48.8 billion in the same period while shortfalls in import and excise duty were recorded at Sh19.4 billion and Sh30.7 billion respectively.

Despite the weakness in tax revenue mobilisation, the Treasury remains confident of a revamp in collections based on reforms to bolster the operations of the Kenya Revenue Authority (KRA).

“Revenue performance is anticipated to improve over the course of the fiscal year, mainly supported by the improved revenue administration by KRA,” the Treasury states in the 2024 Budget Policy Statement.

While the constant tax shortfall remains a weak point, the exchequer will find momentum from an improved domestic borrowing in the year as it stays ahead of targets buoyed most recently by the outsized investor subscription to the February infrastructure bond.

Externally, sustained flows from the World Bank and the International Monetary Fund (IMF) and the recently issued Eurobond leaves the National Treasury on course to meet its external borrowing target.

Moreover, the National Treasury is shortly expected to issue its second supplementary budget estimates which are expected to deliver a narrower fiscal deficit, easing pressure on revenue mobilization.

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