Slow job growth denies KRA Sh30bn income tax

The government’s hopes of raising higher revenues from new jobs and salary increases in the private sector have been dampened after the Kenya Revenue Authority (KRA) recorded a 12 percent shortfall in its targeted tax collection from salaries.

The Treasury had estimated that it could raise Sh110 billion from Pay As You Earn (PAYE) in the first three months of the current financial year, but only managed to raise Sh98.1 billion.

It had also projected to collect Sh100 billion from incomes, but the taxman brought in Sh82 billion, underlying the challenges that the economy is experiencing in creating new jobs and increasing incomes in both the formal and informal sectors.

The Treasury finds itself in a catch-22 as it can ill-afford to miss tax targets given that it has run out of room to borrow to plug the revenue gap. However, it still has a little wiggle room after Parliament last month passed an amendment raising the debt ceiling to Sh9 trillion.

This came in the wake of regulatory filings showing that Kenya spends about Sh60 out of every Sh100 it collects as tax to pay off debt. Shrinking tax collection is set to pile more pressure on the Treasury to meet its obligations.

"Ordinary revenue collection was Sh384.4 billion against a target of Sh444.5 billion, which was Sh60.2 billion below the target," acting Treasury Secretary Ukur Yatani said. President Uhuru Kenyatta, who has made job creation a pursuit for his legacy has been hard-pressed to deliver on the governments ability to create a favourable condition for investment.

In June, Mr Kenyatta touted the revamped Rivatex textile factory, where government had injected Sh5 billion to generate 3,000 jobs. He later launched MasterCard Foundation's Africa Youth Works, a Sh100 billion initiative to create five million jobs over five years and launched the Kenya National Shipping Line that would create over 50,000 jobs.

However, data does not seem to support the hyped launches, suggesting instead a series of job cuts, freezes on salary increases and financial headwinds for businesses struggling with delayed government payments and a slow down in lending by commercial banks.

The President recently sent his ministers under the National Development Implementation and Communication Cabinet Committee to meet the business lobby group under the umbrella of the Kenya Private Sector Alliance to draw a roadmap for stimulating private sector growth to create jobs and deliver on the Big Four Agenda.

The meeting at the Kenya School of Government will draw a plan that will be presented to Mr Kenyatta in two weeks. Tax targeted on manufactured goods including Value Added Tax on local goods missed the target by Sh6 billion to post Sh59.4 billion in the three months to September while VAT on imported goods fell short by Sh8 billion to Sh46.3 billion.

Excise duty for the first quarter of the fiscal year was Sh49 billion against a target of Sh57 billion while import duty was Sh25 billion against a target of Sh32 billion. The AIA collected was below target by Sh13.7 billion during the quarter under review, which the Treasury blamed on under-reporting in the ministerial expenditure returns for the period under review.

The Railway Development Levy collection amounted to Sh5.5 billion against a target of Sh7 billion. By the end of September 2019, total revenue collected, including AIA, amounted to Sh421.2 billion against a target of Sh495 billion.

Even as the government fell behind tax collection targets, pressure to pay suppliers is turning out to be a huge headache with the national government owing to pending bills running close to Sh100 billion.

The Treasury had issued a Circular No. 7/2019, for pending bills from last year to be treated as a first charge in the new budget. "The total outstanding pending bills including expenditure carry-overs as at the end of FY 2018/19 amounted to Sh94.5 billion. This comprised of Sh92.2 billion and Sh2.3 billion non-AGPO and AGPO pending bills and expenditure carry-overs respectively," Mr Yatani said in the first quarter economic budget review. The Treasury is also facing a problem of heavy national recurrent budget which overshot limits amounting to Sh381.3 billion (excluding Sh9.9 billion for Parliament and the Judiciary), against a target of Sh374.4 billion, leading to an over-expenditure of Sh7 billion.

The over-expenditure was mainly due to above-target payments of operation and maintenance and domestic interest by Sh8.8 billion and Sh4 billion respectively.