Depressed economy hits growth of tax collections

Times Tower in Nairobi, the Kenya Revenue Authority headquarters. FILE PHOTO | DENNIS ONSONGO | NMG

The pace of growth in tax collections slowed down in the 2022/23 financial year as headwinds in the economy put brakes on the post-Covid-19 recovery.

Data from the Kenya Revenue Authority (KRA) shows that tax collections expanded at a slower pace of 5.9 percent to Sh2.03 trillion, ending a season of double-digit growth.

Read: KRA misses tax targets by Sh27bn in Ruto presidency

In contrast, the tax receipts had posted an acceleration of 22.7 percent in the 2021/22 fiscal cycle as domestic revenue mobilisation profited from the reopening of the economy, offsetting a 0.7 percent dip in tax revenue through 2020/21.

The rate of expansion in the exchequer revenues was nevertheless faster than the 4.9 percent recorded in the 2019/20 fiscal year.

The KRA pointed to a slower rate of economic activity in the period along with runaway inflation for the slowdown in collections that saw the taxman missing out on its tax revenue target estimated at Sh2.263 trillion.

Last year, the KRA beat its ordinary revenue collection target by Sh66.4 billion as tax receipts marked a seemingly automatic liftoff following the reopening of the economy.

“Overall inflation remained above forecast levels averaging 8.78 percent compared to an average of 6.15 percent in the FY2021/2022. This was mainly driven by high fuel, electricity and food prices. The general economic environment was also influenced by the exchange rate of Kenya shilling against the dollar, which registered a consistent depreciation,” the KRA stated.

Various tax heads marked a deceleration from a year earlier to mirror the general slowdown in overall receipts. For instance, domestic VAT grew at a slower rate of 11.24 percent from 24.28 percent previously, rising to Sh272.45 billion from Sh244.93 billion.

Equally, payroll taxes grew at a narrower rate of 7.1 percent compared to 27.3 percent in FY2021/22 and settled at Sh494.98 billion from Sh462.36 billion.

Import duty, nevertheless, upset the general growth contraction to expand by a faster rate of 9.9 percent from 9.1 percent previously, rising to Sh129.99 billion from Sh118.28 billion.

Exemptions and remissions of duty contained the growth of custom taxes despite higher-value imports.

“Custom taxes performance was in part affected by growth in exemptions and remissions which grew by 39.7 percent, driven by special exemptions accorded to rice, maize, sugar and cooking oil. These products account for 24.8 percent of exemptions accorded in the FY 2022/23,” the tax agency added.

Across 2021/22, the Treasury cited an improved operating environment alongside fiscal interventions by the government for the rebound in tax receipts as ordinary revenues touched Sh1.917 trillion.

“The growth is largely attributed to the improved operating business environment and targeted economic stimulus interventions by the government,” the Treasury said in an economic and budget review covering the year to June 2022. It expects the KRA to collect Sh2.57 trillion, which is equivalent to 15.8 percent of GDP.

Read: Tax receipts slow down to a single digit growth

In his maiden budget speech last month, Treasury Cabinet Secretary Njuguna Ndung’u underlined tax measures and reforms as the key driver to revenue growth as the government targets to scale revenue collection efforts by KRA to Sh4 trillion.

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