Tough task for KRA to collect Sh500b amid economic dip

Workers at the Shona Garments Factory in Athi River make face masks. State incentives offered to companies will lead to reduced tax revenue. [Peterson Githaiga, Standard]

The Kenya Revenue Authority (KRA) will have an uphill task of breaking the spell of Covid-19 on the economy and collect Sh531 billion in taxes.

Latest data on National Treasury’s revenues and expenditures shows KRA had collected Sh1.12 trillion by end of March against a revised budget of Sh1.64 trillion for the current financial year ending June.

Observers do not expect the effect of the virus to have abated by end of June, making it hard for the taxman to meet its target.

Last month alone, when the country announced its first case of coronavirus, KRA managed to collect Sh124 billion. This is the average collection per month since the beginning of the 2019-20 financial year in July last year.

However, KRA - which has been missing its targets for years now - is expected to struggle at a time when the government’s stringent measures to curb the spread of the viral disease have brought the economy to a standstill.

To turbo-charge the economy, President Uhuru Kenyatta’s government has offered a number of tax incentives which, combined with a tough business environment, have led to an underperformance in almost all tax heads.

“At the same time, other domestic taxes have shrunk due to declined incomes and depressed consumption as the government enhanced Covid-19 containment measures that restricted movement of persons within four counties and the rest of the country,” said National Treasury Cabinet Secretary Ukur Yatani.

Revised downwards

Treasury has since revised downwards the economic growth for this year to less than three per cent while the Central Bank of Kenya expects the economy to grow by 3.4 per cent, down from 6.2 per cent.

The International Monetary Fund has projected the economy to grow by one per cent before picking up to 6.1 per cent next year.

Despite a number of financial commitments, especially from donor partners, there were no major changes in other revenue streams, according to the Treasury report, with loans from bilateral and foreign organisations rising to Sh24.3 billion in March from Sh21.4 in the previous month.

It is within this period that the Exchequer received Sh1 billion from the World Bank to help boost the country’s health system to deal with Covid-19.

Domestic loans increased by seven per cent to Sh405.1 billion from Sh378.4 billion that was collected in February.

Following the second supplementary budget estimates, net domestic financing - debt borrowed for budgetary support and which does not include loans used to repay other loans - has been revised to Sh321.1 billion from Sh300.7 billion.

Net foreign financing is projected at Sh339.8 billion with Treasury avoiding the expensive Eurobond for the first time.