A crackdown on wealthy tax cheats in the final financial year of President Uhuru Kenyatta yielded Sh103 billion in new revenue, helping the country bridge its budget hole in the wake of expensive debt.
The International Monetary Fund (IMF) says the extra revenue as a result of roping into tax net households and businesses, which previously evaded the dragnet has been key to generating cash for fuel and fertiliser subsidies.
The Kenya Revenue Authority (KRA) netted Sh2.031 trillion against the Treasury’s original target of Sh1.882 trillion for the financial year ended June 2022 on the back of aggressive use of data to catch cheats.
The IMF says in the latest review that the tax receipts in the period exceeded its expectations under the 38-month Sh297.38 billion ($2.416 billion) budgetary support programme agreed upon in April 2021 but disbursed in phases.
“By broadening the tax base and strengthening tax administration so that those who owe taxes pay taxes, Kenya generated Sh103 billion (0.8 per cent of GDP) in extra revenues, substantially overperforming the objectives set when the programme was approved (April 2021),” the IMF wrote in the statement following approval of Sh55.07 billion ($447.39 million) disbursement under the programme late Monday.
“Those extra revenues are providing resources to support additional government spending aimed at protecting Kenyan households in the face of recent global shocks.”
Kenya spent Sh81 billion to cushion households and businesses against the high cost of fuel in the financial year that ended in June, while additional funds went into fertiliser subsidies in the wake of Russia’s brutal war in Ukraine which exacerbated supply chain disruptions and raised global commodity prices.
The KRA is increasingly relying on information shared between its detectives and sleuths attached to other enforcement and intelligence agencies to bust suspected tax evasion schemes.
Hardcore tax evaders
These include the National Intelligence Service, Directorate of Criminal Investigations, Financial Reporting Centre, Ethics and Anti-Corruption Commission and Office of the Director of Public Prosecutions.
“Some people have made it their business model where tax evasion is part of their profitability.
“Those are people we call hardcore tax evaders,” Terra Saidimu, commissioner for Intelligence and Strategic Operations Unit at the KRA, told the Business Daily in an earlier interview.
“Once we have established there is a deliberate tax evasion, we pass it on to our investigators who investigate and, in some cases, recover taxes or prosecute. But the prosecution does not negate paying taxes.”
The KRA has, however, come under fire from business leaders who have over the years complained of a tax regime that is largely unpredictable and one that overburdens a few persons and firms in the formal sector with increased taxes.
President William Ruto — who reportedly held a nine-hour meeting with KRA officials upon taking power last September — has directed the taxman to be friendlier and more efficient in a bid to enhance low compliance levels in an economy dominated by the informal sector.
“A huge obstacle to the realisation of our national revenue target is that in practice tax administration has traditionally been a repressive, menacing affair which resembles extortion,” Dr Ruto said on October 28.
“This extinguishes taxpayer incentive and diminishes the prospect of an expanded tax base, pulling Kenyan backwards from its national revenue potential and denying its citizens critical services and development programmes.”