The Treasury has published new rules that compel all regulatory agencies to submit the exchequer’s share of their operating surpluses within a month of closing books in a move that is expected to rake in more than Sh23 billion in revenues.
The Public Finance Management (National Government) (Amendment) Regulations 2018 seek to address the prevailing lack of consistency in the transmission of surpluses to the Consolidated Fund.
Treasury secretary Henry Rotich says the delay has been denying the exchequer its rightful share of the billions of shillings that the regulators earn every year from key sectors of the economy.
Mr Rotich did not, however, disclose the names of the regulators who have not been remitting the surplus funds.
The Treasury changed the regulations in 2015 to have the regulators submit 90 per cent of their surpluses in exchange for exemption from paying corporate taxes.
“A regulatory authority established by an Act of Parliament shall remit to the collector (the Kenya Revenue Authority) 90 per cent of its surplus funds not later than 30 days after it is reported in the audited financial statements at the end of each financial year,” the new regulations gazetted on June 14 say.
The regulations were, however, silent on the deadline for remitting the funds, leading to some taking advantage of the loophole to either remit late or not remit at all. Mr Rotich has now moved to enforce the rule by appointing the KRA as the collecting agent.
The latest financial data for the regulatory agencies for the financial years 2016/17 and 2015/16 shows a collective surplus of Sh25.6 billion, which at 90 per cent of the total would leave the Treasury’s share at Sh23 billion.
The amount would, however, vary from year to year depending on the performance of the regulators. The list of regulators includes the Central Bank of Kenya (CBK), the Communications Authority of Kenya (CA), the Energy Regulatory Commission (ERC), the Capital Markets Authority (CMA), the Insurance Regulatory Authority (IRA) and the Retirements Benefits Authority (RBA).
Others are Saccos regulator Sasra, Agriculture and Food Authority (AFA), Competition Authority of Kenya (CAK), National Transport and Safety Authority (NTSA), the Kenya Civil Aviation Authority (KCAA) and the Water Resources Authority (WRA).
These agencies derive revenues from licensing and other fees such as fines and penalties levied on institutions they regulate.Banking sector regulator, the CBK, reported the highest surplus at Sh17.6 billion for the financial year ended June 2017, while KCAA’s books show that it carried forward a surplus balance of Sh3.4 billion at the end of the financial year ending June 2016.
The CA reported a surplus of Sh1.4 billion at the end of June 2017, while the ERC closed the year ended June 2016 with a surplus of Sh1.17 billion.
Some of the regulators have, however, reported losses – meaning the Treasury will not get any funds from their operations. The list includes the Sacco Societies Regulatory Authority (Sasra) and the WRA which reported losses of Sh48.3 million and Sh265 million in 2015/16.
The Treasury’s decision to speed up the collection of surpluses from regulators indicates its thirst for cash as it looks to finance the Sh3 trillion budget for the fiscal year 2018/19.
Mr Rotich faces a tricky balancing act of catering for expanded expenditure while achieving a target of narrowing the fiscal deficit from 7.2 per cent in 2017/18 to 5.7 per cent — a nominal Sh569 billion cut.
The Jubilee administration has set an ambitious “Big Four Plan” that will see it spend heavily on improved healthcare, manufacturing, housing and food security.
This has piled pressure on the Treasury and the KRA to streamline and improve revenue collection, resulting in the ongoing efforts to tighten the loopholes in tax administration to get more Kenyans in the tax net.
This is in addition to increases in a number of tax rates, including excise on mobile money and large bank cash transfers, kerosene, bottled water, large private cars and confectionery.
The usual plan of financing the budget expenditure through higher borrowing is becoming more difficult by the day for the government as the country’s debt to GDP ratio continues to rise, now approaching 60 per cent. The outstanding public debt has crossed Sh5 trillion, having doubled since June 2014.