KRA missed target signals rise in price of State services

The Treasury has signalled fee increases for government services and fines as well as an aggressive pursuit of surplus cash in State firms as it seeks to double collections from non-tax revenues while lowering the Kenya Revenue Authority’s targets by Sh102.70 billion.

Cash flow problems brought home by job cuts and lower corporate earnings amid modest economic activity have cut avenues for raising taxes, forcing the Treasury to cut KRA’s targets for the year to June to Sh1.7 trillion from the initial Sh1.81 trillion.

To partly fill the void left by below target KRA receipts, the Treasury has doubled its revenue goal from non-tax revenues to Sh138.86 billion from Sh69.33 billion, latest fillings indicate, putting pressure on individuals who pay to receive government services.

Non-tax revenues include income from State property including housing and shares in companies like Safaricom, disposal of government assets and royalties from ventures like mining.

It also includes penalties and forfeitures by the government as well fines originating from cases in court, which generated Sh2.6 billion in the year to June.

This category of State income also includes fees paid for access of government services such as good conduct certificates from the police, passport fees, work permit fees as well as certificates for death, birth and marriage.

“Cost of most government services has remained unchanged for years despite the rise in inflation. We could see a rise in the cost of these items as we focus more on non-tax revenue,” said a top Treasury official who sought anonymity.

The Treasury would also aggressively pursue dividends and retained earnings from State corporations, he added.

Official records show that the Treasury had raised Sh66 billion out of a target of Sh8 billion in dividends and retained earnings.

Some State companies have not been remitting their dividends and surplus cash at the end of every financial year as required by law.

The sharp cut in KRA’s tax collection targets barely halfway into the current financial year reflects the current economic realities of depressed corporate earnings, stagnant wages and unrelenting layoffs.

It also signals the Treasury’s forecast of delayed recovery from the current soft economy.

“It’s been a difficult year full of uncertainty and unpredictability in the operating environment largely arising from the sporadic policies that have come up aimed at getting more money from businesses. It is very difficult to predict what is going to happen tomorrow, which has made it difficult for companies to plan,” Federation of Kenya Employers (FKE) executive director Jacqueline Mugo said.

“For employers, that has resulted in industrial disharmony (strikes), a lot of redundancies and job losses as well as companies either holding back on new investments or scaling down. Some of the companies have also relocated.”

Corporate Kenya has witnessed reduced profitability that has ushered in job cuts, freezes in hiring and near stagnant wages in the race to protect profit margins.

The national and county governments have also delayed payments estimated at more than Sh100 billion owed to suppliers, forcing some to cut back operations, shed jobs or face auctioneers after failing to service their bank loans.

As a result, the amount of cash in Kenyans’ pockets has dropped to a four and half-year low with the Central Bank of Kenya (CBK) data showing that money circulating outside banks dropped to Sh176.9 billion in October — the lowest since July 2015.

The effects of this has been below target collection of payroll taxes — levied on workers’ monthly pay— and accounts for nearly half of KRA collections.

Corporate taxes, which comes from business profits, has also been hit in an environment where a record number of firms listed on the Nairobi Securities Exchange are issuing profit warnings. KRA experienced tax shortfalls of Sh60.2 billion in the three months to September.

But the taxman had collected Sh628.46 billion in the five months to November, a growth of 12.10 percent, or Sh72.80 billion over the same period a year earlier.

The Kenyan economy grew by 5.6 percent in the second quarter ended June, down from 6.4 percent in the same period a year earlier.

Despite the expansion, private sector activity — which translates to jobs and higher pay — has remained muted.

“Broadly speaking, the last two years have been tough and challenging for the private sector and by extension, the pockets of an average consumer have not been deep enough,” said Jibran Qureishi, the lead economist for Markit Stanbic Bank Kenya’s Purchasing Managers Index (PMI), which measures monthly business activity through interviews with company managers.

Kenya Private Sector Alliance (Kepsa), the apex body for businesses, has partly blamed the State for the modest economic activity.

Several challenges continued to affect business… (including) overreaching regulatory environment have slowed business decisions and delayed payments have affected the natural cycle of business,” said Carole Kariuki, the chief executive of Kepsa.