The Kenya Revenue Authority missed its first quarter target by a whopping Sh28 billion, precipitating the biting cash crunch that has hit the government in the past two months.
KRA commissioner-general John Njiraini on Thursday told Parliament that he collected approximately Sh300 billion in the first three months of the current financial year against a target of Sh328 billion.
“We are looking at a Sh28 billion shortfall because of things that are not in our control,” said Mr Njiraini.
The figure represents a 10.2 per cent growth compared to a similar period the previous year, showing just how high the target was set.
KRA attributes the revenue shortfall to a plummeting of corporate taxes as large companies posted lower earnings saddled by higher financing costs in the wake of the steep rise in interest rates and stiff competition from Chinese and Indian products.
The agency also revealed that large companies had laid off staff while the government imposed a recruitment freeze, resulting in staff shortages that have undermined its ability to collect payroll taxes.
Salary related taxes were the hardest hit by the slowdown, closing the quarter Sh10 billion shy of target. The taxman collected only Sh65 billion from Pay As You Earn (PAYE), Mr Njiraini said.
Payroll taxes grew by 9.5 per cent last year compared to an average 20.7 per cent the previous three years, indicating a deterioration of the employment market. “Our research indicated the slowdown was caused by the freeze in public sector wage increments and weak growth in large corporate sector payrolls (growth of 3.4 per cent),” said Mr Njiraini.
Businesses have also been submitting lower corporate taxes, paid in installments, due to a flattening out or a drop in earnings.
The Treasury has hired international consultants, Mckinsey, to help it seal loopholes in tax administration it believes are denying the Exchequer billions of shillings every month.
Treasury secretary Henry Rotich said he hoped to raise an estimated Sh20 billion from the tax tribunal that is expected to start operations next week, following Thursday’s gazettment of regulations governing it.
KRA records show that the taxman has been facing a growing tax disputes mountain worth Sh105 billion and appeals valued at Sh75 billion waiting to be heard by the tribunal. Some Sh30 billion worth of fresh cases are in court.
Mr Njiraini said he did not expect to recoup the Sh10 billion lost to delayed passing of the excise duty law that is currently before Parliament.
The Bill seeks to widen the base for taxable goods while introducing a flat tax of Sh200,000 for car imports.
He defended the recommended tax on imported cars, arguing that it will lead to higher collections despite being lower than what the KRA previously collected from expensive cars.
He argued that car importers have previously been manipulating the value of cars so as to evade tax under the graduated payment structure.
“The principle is to move towards certainty, which is what the bill provides,” said Mr Njiraini.
KRA staff at Mombasa’s port will also be rotated frequently to avoid collusion with the container freight stations. Staff at the tax collecting agency have been accused of being corrupt, leading to the low collections.
The taxman said he had received 178 cases of fraud against his officers in the last three years, 20 of which ended in dismissals while 120 were undergoing the disciplinary action.
President Uhuru Kenyatta recently announced the staff would be undergoing a lifestyle audit in efforts to cull out corrupt officials.
The KRA, however, pointed out that demands made on it were very ambitious indicating the huge cash appetite of the current government.
Treasury requires the taxman to grow his collections by 20.9 per cent compared to an average growth of 14.8 per cent in the last three years.
Low revenue collections compared to expenditures has forced Treasury to go for debt to seal the bridge. The government expects to receive Sh80 billion from a syndicated loan with treasury secretary saying the country’s debt levels, 53 per cent of the GDP, were sustainable.
“When it reaches 74 per cent of GDP, given the size of our economy, then we are at a red light and need to lower our appetite,” he said.