SHORTFALL

Corona stalls KRA's half-year collection by Sh110 billion

The fall in revenue collection is also attributed to tax relief imposed by the government to cushion households from the economic pressures of Covid-19.

In Summary
  • The six months collection stood at Sh673.6 billion against an annual collection target of Sh1.56 trillion.
  • Business activities were grounded to a near halt in the first quarter of the year after the country imposed strict measures to curb the spread of the virus. 
KRA Commissioner General James Githii Mburu.
KRA Commissioner General James Githii Mburu.
Image: COURTESY

Kenya Revenue Authority missed a half-year tax collection target by Sh109.9 billion as Covid-19 accelerated disruption of economic activities.

The latest data from the Treasury’s statement of actual revenues and net exchequer issue as of December 31, tax revenues stood at Sh673.6 billion against an annual collection target of Sh1.56 trillion.

The revenue agency was expected to collect at least Sh783.5 billion in the first six months of the year to be within the collection target. It collected Sh779.3 billion similar period in 2019. 

The taxman is therefore tasked with raising an estimated Sh893 billion in the next six months to match up the target set after revisions to cover shortfalls occasioned by the Covid-19 pandemic.

Business activities were grounded to a near halt in the first quarter of the year after the country imposed strict measures to curb the spread of the virus. 

The fall in revenue collection is also attributed to tax relief imposed by the government to cushion households from the economic pressures of Covid-19. 

Tax relief measures including a lowered pay as you earn (PAYE) rate and a lower rate of value-added tax (VAT) at 14 per cent also contributed to the revenue slide.

The government also reduced corporation tax from 30 per cent to 25 per cent. 

According to Treasury cabinet secretary Ukur Yatani, the tax cut saw the government lose Sh172 billion in revenue but hopes to fill the gap by clawing back tax incentives through the Finance Act, 2020.

A range of new taxes in the Finance Act, 2020 including the digital services tax (DST) and the minimum tax took effect early this month and expected to generate Sh38.9 billion, which will account for 22.6 per cent of the foregone taxes.

Meanwhile, non-tax revenues which represent fines and other levies collected by the KRA exceeded the half-year target, with Sh52.9 billion collected in six months compared to the annual target of Sh66.1 billion. 

The fines collected during the period under review were however 32.6 per cent lower compared to the corresponding period in the 2019/20 financial year. 

Generally, the exchequer collected total revenue of Sh1.2 trillion in the first six of the year against the annual target of Sh2.8 trillion, meaning it lagged by Sh200 billion. 

The low tax collection during the period saw the government also lag behind in meeting its key obligations. For instance, it has paid Sh413.5 billion in debt against an annual target of Sh9o4.7 billion, less than 50 per cent. 

It has also piled salaries and allowances for state workers, with some not paid for up to three months.

According to the Treasury data, only Sh1.3 billion had been paid in salaries compared to Sh4.17 billion allocated for the year. At least Sh2 billion is supposed to have been paid by December 31 last year. 

Total issues to the National government were at Sh1.05 trillion compared to the annual target of Sh2.4 trillion while counties had received a total of Sh123.9 billion compared to an annual target of Sh383.6 billion. 

The slump in revenue collections has caused has sent the exchequer in a panic mode, forcing Kenya t0 to reconsider debt relief offers it declined in July. 

Even so, the revenue man is hopeful that collection will rebound in the last half as economic activities return to normalcy. 

Last week, KRA reported the first positive flows in revenue collected since the start of the pandemic during the month of December as collections grew by 3.5 per cent to Sh166 billion. 

“The improved performance is attributed to the economic recovery following the relaxation of the stringent COVID-19 containment measures,” KRA commissioner General Githii Mburu in a statement.