The Kenya Revenue Authority’s tax collection for the first quarter of the financial year has risen 10 per cent to Sh159.2 billion, equivalent to about one-fifth of the annual target but below the yearly growth target of 23 per cent.
Data released by the Treasury on Friday showed the taxman collected 19.4 per cent of the targeted annual collections of Sh817.4 billion between July and September, which comprise the first three months of the financial year.
By September last year the government had collected 21.2 per cent of the then targeted of Sh681.8 billion, which was later raised to Sh707.4 billion.
“It (the performance) puts more pressure on the government to close the gap,” said John Kamunya, a research analyst at Sterling Capital.
The performance is expected to improve with government’s resolve to pump more investment into the tax collecting agency in order to make it more efficient and give it the muscle to chase tax evaders.
The Treasury is also expected to raise its borrowing plan if the shortfall is too wide.
“Expenditure is growing at a faster rate than revenues so they need to borrow more to meet current shortfall,” said Alex Muiruri, a fixed income analyst at African Alliance.
The data, however, does not provide the components of the tax revenue which would make it easier to identify how the different KRA departments were performing.
The government last week secured a Sh7.2 billion 10-year loan from Standard Chartered Bank and it has also been active in the domestic borrowing market, pushing up interest rates.
A breakdown of expenditure shows that the exchequer released Sh232.8 billion to ministries for spend in the first three months of the financial year with Sh171.6 billion directed towards recurrent expenditure while Sh61.2 billion was for development.
The expenditure rate is equivalent to 19.4 per cent of the annual total.
Last year, the exchequer had issued Sh162 billion in the same period indicating a 43.2 per cent growth in expenditure.
This compares poorly to a 3.2 per cent growth in total revenues, which include non-tax income, net borrowings and grants.
The total revenues as at last month stood at Sh168.3 billion compared to Sh16.1 billion last year.
The recent salary allocations to the civil servants and teachers have further deepened the financing gap faced by the government.
To cover the deficit, the government has introduced new tax measures on alcoholic drinks and transaction fees charged for mobile money transfer system through amendments to the Finance Bill.
The amendments are yet to take effect following the president’s rejection of the Bill after MPs awarded themselves huge payoff packages through the same Bill.
The Finance minister Njeru Githae recently allocated Sh1.5 billion to KRA to be put towards administrative capacity building in this fiscal year.
The authority has previously complained of being under funded, a factor that undermined its efforts to fully implement tax liabilities.
The Treasury is also banking on the passing of the VAT Bill, which will widen the range of taxable goods increasing its collections.
However, the bill may face major resistance since some of the legislators have vowed to frustrate its tabling following the President’s decision to deny them their self-awarded Sh2.2 million each payoff package.
There has also been contention on exclusion of zero rating of goods, with those opposed to the proposed changes holding that some essential goods should be excluded from the value added tax (VAT) bracket.
The Treasury has stated that it wants to raise VAT collections from the current five per cent of gross domestic product to near the global best practice of 20 per cent.
It is estimated that the KRA loses up to Sh40 billion from exemptions and adoption of the Bill is expected to widen the taxman’s scope.
The tax collector is also preparing to turn its attention to landlords who have for years avoided paying tax on rent income to boost its collection.
KRA is also enhancing the electronic tax register through interconnectivity to a real-time central server to facilitate two-way communication between taxpayers and the taxman.