Kenya’s tax revenue growth lowest in a decade, says World Bank

KRA Commissioner General John Njiraini. World Bank said growth in tax revenue has been subdued over slowdown in the economy. [Boniface Okendo, Standard]

 

Kenya’s revenue is not growing as fast as the economy, the World Bank has said.

In the 2016/17 financial year, tax-to-GDP (gross domestic product) ratio fell to 16.9 per cent, the lowest in a decade.

The global lender has noted that even though more goods and services have been traded, very little of these economic activities have been taxed. This has seen the Government run huge deficits that have been plugged with more debt.

“Although it (revenues) grew by 13.3 per cent in nominal terms in 16/17, tax revenues expanded by less than nominal GDP 14.9 per cent, hence the tax-to-GDP ratio fell to 16.9  percent of GDP—its  lowest  level in a decade,” said the World Bank in its 16th edition of Kenya Economic Update, which was unveiled last week in Nairobi.

Tax revenue, said the Bretton Woods institution, is not keeping pace with the expansion in expenditure and the buoyancy of economic growth, bringing into question KRA’s aggressive efforts to ensure tax compliance.

Although agriculture contributes a lot to the economy - about a quarter - the sector paid the least corporate income tax, according to the World Bank. A slowdown in the economy, particularly following a prolonged electioneering period that started early last year, was to blame.

“For instance, over the past year, the financial sector, which is one of the largest contributors to corporate tax, experienced a slowdown following the interest rate cap — this has in turn reduced their profit margins and tax obligations,” said the World Bank.

“Beyond the election-induced slowdown in economic activity, a number of companies in the manufacturing and financial sector have laid off employees.”

The lender revised down the country’s economic growth for 2017 to 4.9 per cent down from 5.5 per cent.

The World Bank said that despite stable VAT, excise duty, and import duty of 4.4, 2.1, and 1.2 per cent of GDP respectively, the drop in the tax-to-GDP ratio was occasioned by subdued growth in both personal income and corporate income taxes. This is consistent with slowed demand in the private sector.

Missed its target

Figures from the National Treasury indicate that in 2016/17, the cumulative revenue collection, including appropriation-in-aid (A-I-A), was Sh1.4 trillion.

“This revenue was Sh54.8 billion below the revised target of Sh1.45 trillion due to shortfall in ordinary revenue collection (by Sh5.5 billion) following reduced collections from excise duty and corporate income tax, and the shortfall in the collection of cumulative ministerial A-i-A (by Sh49.2 billion),” said Treasury in the 2017 Budget Review and Outlook Paper.

Revenue collection has started on the wrong footing with official statistics contained in the Treasury’s Quarterly Economic Budget Review showing dismal tax performance in the first quarter of 2017/18. Between July and September 2017, Kenya Revenue Authority missed its target of Sh89.6 billion by a fifth, the highest in at least 15 years.