A reduction in headcount has pushed down pay-as-you-earn (PAYE) tax, putting the Treasury finances in a precarious position in the first half of fiscal year 2019/20.
As a result of the low collection, cumulative ordinary (mainly tax) revenue underperformed the target by Sh138.7 billion in the half-year period to December. The other poor performers were excise tax and value-added tax (VAT), which are directly connected to business activity.
The total revenue collections including Appropriation in Aid (or fees from ministries and their agencies) by December 2019 amounted to Sh920.6 billion against a target of Sh1.06 billion.
“Cumulative ordinary revenue fell short of the December target by Sh138.7 billion. The shortfall was in all broad categories of ordinary revenues with income tax recording the highest shortfall on account of depressed performance in PAYE followed by excise tax and VAT,” said the Treasury in a draft Budget Policy Statement (BPS).
The State is, however, optimistic that the shortfall will be covered in the second half of the financial year, even as it has planned to increase domestic borrowing by a massive Sh84.6 billion to hit a total of Sh514 billion. The higher domestic borrowing is linked to the additional Sh55.23 billion expenditure for development as contained in the revised national budget.
Despite not reaching the collection target for the half-year to last December, total revenue collection was higher than same period last year.
“Revenue collection to December 2019 grew by 15.9 percent compared to the same period in the fiscal year 2018/19. This growth was driven in part by a rebound effect, after the poor performance in the previous financial year as well as the effect of the tax policy measures introduced in the Finance Act 2019,” said the Treasury.