This archive report was first published on 22 October 2019.
Kenya's tax collection woes have persisted into the new financial year, with the Kenya Revenue Authority (KRA) struggling to meet its revenue targets.
According to the National Treasury's statement of actual revenues and net exchequer issues published on the Kenyan gazette, tax income for the government dropped by 32.4% between July and September 2019, from Ksh.632.9 billion in the same period in 2018.
Month-over-month, new taxes fell sharply in September, with collected revenues shrinking to Ksh.98.9 billion from Ksh.329.1 billion in September 2018.
The decline in tax base is largely attributed to the country's deplorable macroeconomic environment, which has locked out key revenues for the government.
A combination of reduced company investments and tax compliance issues saw KRA miss its expected Ksh.1.77 trillion revenue collection target in the past year by 11%, despite a notable spike in collections to Ksh.1.58 trillion.
The widening of employee tax bands had the opposite effect of containing Pay As You Earn (PAYE) taxes, with the segment's revenue base shrinking by Ksh.6.1 billion.
Moreover, the de-coupling of the Kenyan economy towards lesser revenue-yielding segments, such as agriculture, continues to pose a significant challenge to greater collections, as automation in more discerning tax bases like finance and manufacturing seals off greater revenue opportunities.
“Sectors where we traditionally get a lot of revenues are showing weaknesses while on the vice versa, lesser yielding segments have become dominant,” said KRA's Deputy Commissioner for Innovation and Risk Management, Joseline Ogai, in August 2019.
The falling tax base has presented the largest doubt to Kenya's fiscal containment among multilateral lenders, such as the World Bank, as the accumulation of public debt remains on a forward footing.
The International Monetary Fund (IMF) raised Kenya's debt distress profile from low to medium in October 2018, citing years of persistent misses in revenue mobilization by the government.
According to World Bank's Chief Economist for Kenya, Peter Chacha, the shift in tax contributory segments remains the key ongoing concern to the assessment of Kenya's distress levels.
“There has been a disconnect in revenue mobilization with a decline in the growth of tax to GDP. We have seen the decoupling of the structure of the economy with a shift of growth towards lower contributory segments such as agriculture,” Mr. Chacha said in an interview earlier this month.
KRA hopes to improve its revenue collection performance going forward through improved tax compliance, including greater surveillance of taxpayers.
The improved surveillance is anchored on innovation, with the tax authority seeking to sync taxpayers' information with third-party databases, such as Kenya Power and mobile money services.
Additionally, KRA has stepped up its pursuit of tax cheats, with consistent indictments and prosecutions of tax evaders.
The tax authority aims to prosecute an estimated 600 individuals on tax evasion by the end of June 2020, having indicted 222 persons in the past year, with a 60% surge in tax recoveries to Ksh.8.5 billion.
KRA is expected to pull up its socks in the nine months to the end of the current fiscal year, with the Treasury having pushed up the agency's revenue targets to Ksh.1.81 trillion.
