Treasury Secretary Henry Rotich is set to announce tough tax compliance measures intended to catch defaulters using smart technology in his bid to raise funding for the Sh3.1 trillion budget starting July 1.
Mr Rotich, who will present the 2019 Budget Policy Statement at the National Assembly this afternoon, will outline tax measures intended to fund the 2019-20 budget.
The Treasury is targeting to raise Sh2.115 trillion in total revenue.
The targeted revenue is Sh284.4 billion more than the Sh1.831 trillion income estimates for the current year ending this month.
Ordinary revenue streams for the Treasury – comprising of taxes and non-tax streams such as court fines, charges for use of government services, grants, rent of buildings and forfeitures — are projected to hit Sh1.877 trillion, or 88.72 per cent of the revenue projections.
This means the Kenya Revenue Authority (KRA) is expected to collect Sh225.7 billion more in the coming financial year than the revised Sh1.65 trillion target for the current year.
Mr Rotich is banking on the use of third-party information to identify non-compliant taxpayers such as elusive property developers.
He will also be seeking to empower the taxman with legal legroom and modern technology to match taxpayers’ data through electronic tax filing.
The iTax system, which had a database of 3.94 million taxpayers by June 2018, will be a key cog in the Treasury’s plan to enforce compliance.
Tax-evading property owners will also come under heat from KRA’s capability to feed financial transactions of individuals and businesses from third parties such as banks and utility providers into its Data Warehouse and Business Intelligence (DWBI) platforms at the Times Towers headquarters.
The taxman said last July it was targeting to rope in an additional 66,000 landlords into the tax bracket by June 2021, slightly higher than 58,934 real estate owners netted between July 2015 and June 2018.
Mr Rotich is further banking on the proposed modernised Income Tax Bill, which is expected to be submitted to the National Assembly for approval any time, to “ease administrative bottlenecks, improve compliance and boost revenue collection”.
The CS expects the KRA to collect Sh107.4 billion more from profits generated by businesses and earnings by workers as he targets Sh884.4 billion from income tax compared with Sh777 billion this fiscal year.
Tax receipts from value added tax (VAT), which is tax on consumption, are expected to rise by Sh60.1 billion to Sh496 billion, while excise duty (largely sin taxes on alcohol and cigarettes) is projected to grow by Sh32.1 billion to Sh242.2 billion.
Collections from import duty, on the other hand, are forecast to increase to Sh135.4 billion from Sh120.6 billion targeted in the current year.
Mr Rotich has in recent years come under heavy criticism from tax practitioners and economists for being “overly ambitious” in setting revenue targets for the KRA, which are usually missed.
The taxman, for example, missed the target for the year ended June 2018 by Sh106 billion, while that for the years ended June 2017 and June 2016 fell short by Sh66.6 billion and Sh12.4 billion, respectively, statistics in the KRA 7th Corporate Plan show.
The KRA also appears likely to miss the target for current year, with tax collections in 10 months through April standing at Sh1.16 trillion collections — Sh444.86 billion shy of the ShSh1.61 trillion target with two months to go.
Shortfalls in revenue collection targets widen the country’s budget deficit, which is bridged through increased borrowing to meet cash demands for public service delivery and development projects.
“Financing the budget has been a tough balancing act for the CS as he walks a tight rope between the government’s high expenditure needs and the tax collections, which have continued to fall below expectations,” Stephen Waweru, a senior tax manager at KPMG, said.
“As the debt repayment pressure begins to bite, the CS will have to enforce fiscal discipline, while seeking to grow the revenue pie.”
Mr Rotich also has the option to reintroduce some of the taxation measures which were shot down in the Finance Act 2018 to grow revenue, Mr Waweru said.
These include raising capital tax gains on net proceeds from sale of real estate to 10 or 15 per cent from current five per cent and increasing VAT on fuel to the standard 16 per cent from current eight per cent.
The Treasury could also increase presumptive tax for small businesses with a turnover of up to Sh5 million from 15 per cent of the annual single business permit fee to 15 per cent of the annual turnover.
Mr Rotich also says in the Budget Policy Statement (BPS) that the Treasury will continue pumping cash into the Integrated Customs Management System (iCMS) for scanning and real-time monitoring of goods entering the country through the Mombasa port and airports, and the Electronic Cargo Tracking System (ECTS) for transit cargo.
The two systems are aimed at mitigating revenue leakages through concealment and under-declaration of imports, and dumping of transit goods in the country.
Francis Kamau, lead tax partner at audit and consultancy EY East Africa, said the measures outlined by the Treasury through the BPS may not yield much growth in revenue because they are targeting taxpayers already in the system.
“The silver bullet is targeting the 16 million who are voters and not taxpayers. Until they reach out to them, they will basically continue milking the cow dry,” Mr Kamau said.
He added that some of the intervention through iTax data and invoice-matching have been disruptive to businesses, hurting revenue collections.
The chairman of the Budget and Appropriation Committee of the National Assembly Kimani Ichung’wah last week said the projected additional revenue “are not anchored on clear and quantifiable revenue raising measures”.
“The committee noted these measures have not been quantified in the budget summary and thus cannot be adequately assessed in terms of how much revenue enhancement they are likely to yield,” Mr Ichung’wah said.