SETBACK

National Treasury fails to meet March revenue target

The decline in government revenues was also captured in the latest CBK quarterly economic review

In Summary
  • Total revenue collected as at the end of March 2021 amounted to Sh1.9trillion, equivalent to 63.6 per cent of the revised target of Sh2.9trillion.
  • According Cytonn's weekly report, the revenue under performance was expected given the ravaging effects of the pandemic on the economy.
The Treasury Building. Senate, National Assembly feud over funds for counties.
TREASURY BUILDING: The Treasury Building. Senate, National Assembly feud over funds for counties.
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The National Treasury failed to meet the revenue target for March 2021, as the Covid-19 pandemic continued to hamper revenue collection efforts.

According to an April 16,2021 Kenya Gazette notice, total revenue collected as at the end of March 2021 was Sh1.9trillion, equivalent to 63.6 per cent of the revised target of Sh2.9trillion.

Cumulatively, tax revenues amounted to Sh1.0trillion, equivalent to 70.6 per cent of the target of Sh1.5trillion.

The statement of the actual revenues and net exchequer issues prepared by National Treasury Cabinet Secretary Ukur Yattani shows that the opening balance includes Sh21.4billion held in the IMF Rapid Credit Facility account.

According to Cytonn Investment's weekly report, the revenue under performance was expected given the ravaging effects of the pandemic on the economy for most parts of 2020.

The investors however note that the recent reversal of the tax incentive introduced earlier in 2020 will help improve tax revenue, which has been seen by reported revenue out-performances in the first three months of 2021.

The Kenya Revenue Authority (KRA) surpassed its monthly collection target in March for the fourth time in a row.

The revenue agency collected Sh144.6 billion in March, the highest revenue performance rate since the beginning of the financial year despite a challenging economic environment brought about by Covid-19.

The improved revenue performance was attributed to the sustained implementation of compliance efforts, revenue enhancement initiatives and improved service delivery to taxpayers.

KRA however suffered a setback on Monday after the High Court temporarily stopped it from collecting the minimum tax from small scale businesses, jeopardising its plans of netting Sh21 billion by June this year.

The tax was among the provisions in the Finance Act 2020 that took effect on January 1, 2021. It was part of KRA's efforts to expand its tax base.

“KRA abides in the ruling issued by the court and await the outcome of the main petition slated for hearing on May 19, 2021,” the taxman said in a statement.

Experts at Cytonn added that they expect the government to plug in the Sh59.2billion deficit by turning to the less expensive multilateral institutions and commercial loans, as recently seen by the IMF credit facility of Sh255.9billion.

Looking forward, they expect revenue collection to increase but will remain under pressure from the recent movement restrictions set to curb the spread of Covid-19.

The decline in government revenues was also captured in the CBK quarterly economic review, for the October-December 2020 period.

Government receipts, comprising revenue and grants decreased by 15.5 per cent to Sh436.5 billion in the second quarter of FY 2020/2021, compared to Sh516.6 billion in the second quarter of FY 2019/20.

The decrease was reflected in tax and non-tax revenues as well as external grants which declined by 8.6 percent, 63.9 percent and 37.6 percent respectively.

Appropriation in Aid (A–in-A) however, increased over the same period by 34.5 percent.

CBK notes that there was a minor shift in the composition of tax revenues in the second quarter of FY 2020/2021 compared with a similar period in the previous financial year.

In terms of composition of Tax Revenue, there was a 3.6 percentage points decline in Income Tax while the share of Import Duty, Excise Duty and Other Tax Revenues rose by 1.4 percentage points, 1.8 percentage points and 0.5 percentage points respectively.

Cumulatively to December 2020, government total revenue and grants stood at Sh 819.1 billion (7.3 percent of GDP) against a target of Sh934.9 billion (8.3 percent of GDP).