Payroll tax set to pull down revenue collection by Sh61bn

The Treasury expects to collect Sh61 billion less than initially planned this fiscal year, largely due to lower-than-expected income tax.

The draft Budget Policy Statement (BPS) shows that the revised fiscal framework projects Sh1.702 trillion in total revenue and grants compared to the initial Sh1.763 trillion outlined in the 2017/18 national Budget.

Income Tax is expected to fall short by Sh56.5 billion to stand at Sh709.1 billion compared to the initial estimate of Sh765.6 billion, thanks to lower pay as you earn (PAYE) and corporate tax collection.

This has come against lower gross domestic product growth in the first three quarters of 2017 compared to the previous year and more than 10 listed firms announcing profit warnings.

“It is good to revise the targets for income tax and have modest expectations. There is a higher chance of meeting the revised targets than the earlier ones. The main cause of this is the lower PAYE and corporate profitability,” said John Mutua, programmes officer for budget at Nairobi-based Institute of Economic Affairs.

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In the draft BPS, the Treasury said it was also reviewing the Income Tax Act in a bid to increase collections.

“We will implement various measures to boost revenue mobilisation. These measures will include: complete overhaul of the current Income Tax Act, strengthening tax administration and expansion of the tax base,” says the BPS.

The draft Budget document shows that excise tax collections is also likely to fall short of the initial estimate by Sh13.7 billion to stand at Sh183.7 billion.

However, the numbers could change once the Treasury concludes consultations on the national Budget at the end of this month (February). The final BPS is normally prepared ahead of the final Budget Estimates that are expected towards the end of April.