Market News

State revenue to ‘fall Sh70bn on slowdown’

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Treasury Secretary Ukur Yatani. PHOTO | JEFF ANGOTE | NMG

The Treasury is likely to net lower revenues in the three-month period between April and June, when the fiscal year ends, resulting from reduced economic activity including trade volumes.

According to an analysis by tax and financial advisory firm Deloitte, the revenues are projected to fall by Sh70.1 billion ($658 million) during the period even as amounts collected between January-March remained unknown.

The main cause of the reduction is the onset and spread of Covid-19, which has necessitated a partial lockdown with a significant fall in economic activity.

In the first six months (July to December 2019) of the fiscal year, the total revenue stood at Sh920.6 billion against a target of Sh1.059 trillion — leading to a shortfall of Sh138.4 billion — for the period. That is to say, should shortfall of Sh70.1 billion be realised, this will bring the total shortfall to Sh208.5 billion before considering any shortfall or surplus from the January-March period.

“[We project] $658 million drop in revenue collections in the remaining three months to the 2019/20 fiscal year-end,” says the Deloitte report.

The tax and financial advisory house said the reduction in economic activity will see the gross domestic product fall to 1.0 percent this year from the pre-Covid-19 forecast of 5.7 percent. That is expected to adversely affect income tax, value-added tax as excise duty revenues.

Deloitte projects the value of imports, one of the largest sources of tax revenues, will decline by 3.1 percent or Sh58.06 billion ($545 million). It specifically forecasts that imports from China that was hard-hit by the virus will fall by 36.6 percent.

In the fiscal year to June, the receipts from import duty were projected to be Sh128.2 billion compared to Sh107.7 billion netted in the previous fiscal year.

Total imports last year stood at Sh1.806 trillion, meaning that the fall by Sh58.06 billion will see it at Sh1.749 trillion. However, the report only estimated the fall in the value of imports but not the amount by which the related tax would decline.

Exports, which do not bring a significant amount of taxes because of the need to promote them, are expected to also decline.