Firms’ profit dip eats into KRA tax collections

The Kenya Revenue Authority will have a tough time doubling collections in the next six months after it received only Sh681 billion in tax revenue in December 2018.

This was against a revised target of Sh1.6 trillion (initially Sh1.69 trillion).

This means KRA will have to raise Sh1 trillion between January and June this year, even as companies post a decline in profits while others seek protection from creditors as they face insolvency.

Eight companies have announced that their profits will be 25 per cent lower while three were placed in receivership, denying the taxman billions of shillings in collections.

Crown Paints issued a profit warning last week, joining Investment firm Britam, UAP Old Mutual, Housing Finance, Sameer Africa, Kenya Power, Bamburi Cement, Mumias Sugar, and Sanlam.

The taxman’s demand of Sh1.8 billion from Nakumatt cannot be enforced as it is in receivership. It is the same case for Deacons, which owes KRA Sh62.3 million, and Athi River Mining.

KRA Commissioner General John Njiraini blamed the shortfall on dashed hopes that the economy would pick up after the 2017 polls. “Achievement of targets that depends on a couple of factors including the behaviour of the assumptions that underlie the setting of targets, by economic indicators and assumptions about growth performance in terms of employment growth. If those do not work, then taxes will also be impacted,” Mr Njiraini said during the recent launch of KRA’s seventh corporate plan in Nairobi.

 “We had a couple of issues that negatively impacted those indicators, for example banking, which is a very critical player in tax performance, did not do well. Because of the challenges last year, you are aware we had the prolonged elections and those problems we are gradually getting out, but not fully.”

He added: “Even this year, we still have business complaining about the pickup of economic activities, sluggish demand, therefore affecting the bottom line.”

According to Central Bank data, the banking sector’s profits before tax decreased by 9.6 per cent to Sh133.2 billion in December 2017, which may have followed through 2018 with reduced lending to small businesses.

There was also depressed earnings from Government securities due to oversupply in auctions. Only last week, investors led by banks bid over Sh100 billion when Treasury only asked for Sh40 billion. 

However, when companies fail or fold, they burden banks with bad loans.