Tough economy a challenge to collection target - KRA

Kenya Revenue Authority has said the changing economic landscape poses a headache for its tax targets for the current financial year.

Deputy commissioner for strategy, innovation and risk management Joseline Ogai said automation in the banking sector, layoffs in the private sector as underpinning factors likely to affect attainment of Sh1.87 trillion target set by the National Treasury.

He also cited and difficulty in tracing and taxing those employed in the ICT sector like e-commerce. 

Ogai said some sectors are leaving a declining base which have to be compensated as per the estimates given by the Exchequer.

“The structure of the economy is changing. So we have to strengthen compliance to compensate the gap or else we have to answer to Parliament,” Ogai said.

In the 2018/2019, the tax authority collected Sh1.58 trillion, 11.8 per cent growth from Sh1.43 trillion in the previous year. 

This also close to the set target of Sh1.605 trillion for the ended year.

The tax authority is expected to raise its collection to finance the 2019/2020 financial year's budget of Sh2.8 trillion.

In the financial year ending June 2018, PAYE only grew by 7.9 per cent as a result of subdued growth in the private sector employment.

Employees registered for PAYE grew by 4.5 per cent in the year.

“PAYE growth was driven by the public sector, which registered a cumulative growth of 8.9 per cent driven by upscaling of salaries in the education sector,” KRA stated.

He said if the base is not growing then stronger emphasis will be placed on compliance.

Corporate tax also grew marginally by a minimal 5.5 per cent, compared to a cumulative growth of 4.6 per cent as at the end of the month of May.

This undermined growth in investment deductions by 284 per cent compared to the previous year.

Excise duty on oil imports experienced a low performance by 18.6 per cent decline in petrol volume in June.

“Volume-based tax, domestic excise duty also saw a decline by 4.0 per cent as some commodities have not been doing well,” the 2018/2019 revenue performance statement showed.

This is also coupled with the increasing e-commerce that is not taxed.

“There is still a compliance gap but we have to do what we can to meet the target," Ogai added.

KRA’s goal in revenue mobilization is to raise the Revenue to GDP ratio from 18.3 per cent as recorded within the 2017/18 financial year to 19.2 per cent by the 2020/21 financial year.

According to Institute of Economic Affairs (IEA-Kenya) chief executive Kwame Owino, it would be a serious overreach when it starts to describe revenue targets as share of GDP.

“The explicit expression of growth in the Revenue/GDP ration implies a preference for a tax hike and thereby KRA places itself in the tax policy domain which is political,” Owino said.

According to corporate finance manager at ABC Capital Johnson Nderi, on his twitter handle, KRA isn't supposed to be chasing targets.

“They are supposed to be collecting taxes according to the law as they have been mandated. Chasing targets makes them overly aggressive and incentivises them to hurt the economy in the pursuit of these targets,” he said.