Value Added Tax (VAT) collections increased at the fastest pace in the first five months of the financial year compared to other tax categories, indicating that the levy on petroleum that was effected in September is having a boost on the Treasury’s coffers.
The first official data released after the tax was controversially enforced on fuel products shows the rate of growth in VAT is at an all-time high.
The Kenya Revenue Authority (KRA) netted Sh165.2 billion from VAT between July and November 2018, the first five months of the current financial year that ends in June.
This marked a growth of Sh23.5 billion, or 16.6 percent, compared with Sh141.63 billion recorded in the same period a year earlier.
The enforcement of the standard 16 percent VAT levy on petroleum products from September 1 after a five-year suspension caused a countrywide uproar in an economy that largely runs on diesel and petrol.
The VAT on fuel had a three-year transitional clause for which it had been suspended for two years to August 2018.
The National Assembly halved the levy to eight percent, on recommendation of President Uhuru Kenyatta, through an amendment to the VAT Act 2013 that standardised the levy on all goods and services at 16 percent.
The amendment through the Finance Act 2018 was enforced on September 21.
Francis Kamau, a tax partner at audit and consultancy EY East Africa, partly attributed the rise in VAT collections to efficiency from the matching of input and output VAT with invoices in KRA’s iTax system, helped by the eight percent levy on fuel.
“KRA has also come up with an ingenious method of collecting tax by comparing invoices through iTax where the system compares the invoice issued by company X with company Y.
This ensures that output VAT for company X compares with input VAT for company Y, and that has contributed to the increment (in VAT collections),” Mr Kamau said on phone.
Maximum fuel prices are fixed every month by the Energy Regulatory Commission (ERC).
The VAT Act, part of the far-reaching reforms proposed by the International Monetary Fund (IMF) to help Kenya grow revenue, ushered in a regime where the more you consume, the higher tax you pay.
The 50 percent cut on fuel VAT created a gap in the Sh35 billion in fresh revenue that Treasury secretary had targeted from the levy.
Collections from income tax rose by 3.9 percent to Sh255.08 billion, while that from excise duty climbed 20.65 percent to Sh75.58 billion.
Separate updated data released by Mr Rotich on January 25 shows total tax receipts stood at Sh681.04 billion from Sh630.37 billion in the July-December 2018 period.
The growth in tax revenue in the review period was only higher than the first half of the financial year 2017-18, which was characterised by a bruising, divisive presidential poll that slowed investment among private firms and the government.
“The prolonged elections significantly affected businesses. We are largely getting out of it, but we are not out of it,” KRA commissioner-general John Njiraini told reporters in Nairobi on January 16.
“We still have businesses complaining and expressing concerns regarding the (the slow) pick-up of economic activities and sluggish demand, and, therefore, affecting bottom-line in terms of profitability.”
Mr Rotich in October cut the full-year tax revenue collections target by Sh84.70 billion from the original Sh1.69 trillion at the beginning of the year in July.