Negotiations with taxpayers help KRA beat revenue target

Billions held in disputes at tax tribunal and court were unlocked in the last financial year. [Courtesy]

Kenya Revenue Authority’s (KRA) decision to settle out of court with non-compliant taxpayers has paid off, helping it beat its tax collection target despite an economic slump.

KRA Commissioner for Domestic Taxes Department Rispah Simiyu said that besides sealing loopholes and improving efficiency, the taxman convinced several taxpayers to come to the negotiating table, which unlocked money that was held by disputes.

"Apart from the fact that we were collecting taxes even on a reduced economy, there were very many disputes either at the tribunal or in the court process,” she said. "For those who heeded the call, they came to the table and we unlocked the revenue."

Ms Simiyu was speaking during the launch of a report compiled by audit firm PricewaterhouseCoopers (PwC) on behalf of the Kenya Bankers Association.

The report showed that banks contributed close to a third of the total corporate income tax in 2019 and 2020.

Simiyu said they were aware that businesses were struggling and would only ask them to be current with their tax obligations, and then agree on a payment plan for the back taxes.

The taxman surpassed its target by collecting Sh1.669 trillion in the 2020-21 financial year against a target of Sh1.652 trillion set out in the Budget Policy Statement.

The taxman surpassed its target by collecting Sh1.669 trillion in the 2020-21 financial year. [Courtesy]

In the previous financial year, KRA collected Sh1.607 trillion.

It was the first time in eight years that the taxman had surpassed its revenue target, the last being in the 2013-14 financial year.

The report by PWC, however, showed that tax payments by banks shrunk due to the adverse effects of Covid-19, with some lenders being forced to cut workers.

The number of permanent employees who were charged Pay As You Earn (PAYE) dropped by 8.3 per cent in the period under review.

There was a 12 per cent overall decline in the banks’ total tax contribution in 2020 compared to 2019, according to the report.

Besides PAYE, there was also a drop in corporate taxes

“This decline is partly attributable to reduced tax rates, specifically reduction of corporate tax rate from 30 per cent to 25 per cent, reduction of the top PAYE rate from 30 per cent to 25 per cent and the reduction of value-added tax rate from 16 per cent to 14 per cent,” the report said. “The aim of these measures was to provide relief to taxpayers against adverse economic effects of the Covid-19 pandemic.”

There was a 12 per cent overall decline in the banks’ total tax contribution in 2020. [Courtesy]

Reduced profitability meant that corporate income tax, which is paid on profits, shrunk. Reduction of PAYE was also due to a reduction in workforce by around 8.3 per cent.

Corporate and PAYE taxes had the largest share of the sector’s total tax contribution at 42.5 per cent and 16.5 per cent respectively.

Speaking during the report’s release yesterday, Kenya Bankers Association chief executive Habil Olaka said the contribution indicated the industry remained resilient and had navigated the challenges occasioned by the Covid-19 pandemic.

"We recognise the important role the financial services sector plays in supporting economic growth. We remain committed to sustain efforts towards anchoring business recovery in the face of the Covid-19 disruption,” he said.