KRA could miss target in spite of tax reforms

PHOTO | FILE Kenya Revenue Authority Commissioner General John Njiraini at a past function. KRA has placed 60 of its senior managers on a three-year contract from January 1, 2014.   NATION MEDIA GROUP

In Summary

• Experts attribute this to low purchasing power and challenges in sealing loopholes while clearing tax credits owed to corporates.
• The administration of the VAT Act 2013 is facing fresh challenges with investigations indicating the possible under-valuation of previously zero-rated imports, especially electronics.

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The government is unlikely to achieve its target of collecting an additional Sh10 billion in Value Added Tax this financial year as envisaged in the budget, despite the reforms instituted in the domestic taxes category.

Experts attribute this to low purchasing power and challenges in sealing loopholes while clearing tax credits owed to corporates.

Reforms in the VAT system are among the tax policy changes from which the government expected to raise the Sh973 billion this year.

According to the Medium-Term Expenditure Framework released last week, government expects to raise Sh1.174 billion in 2014/2015 on account of the tax reforms.

“VAT is a consumption tax. When spending is low, that translates into low collections. The high cost of living has reduced purchasing power,” said Mr Nikhil Hira, Tax Partner, Deloitte EA.

Mr Hira observed that despite Parliament’s “making noises” over the high food prices, no changes were made.

“It was expected that these changes would be made in November, but now we hear they could do it in February. Until the economy takes off, the VAT collections will remain low. It’s unlikely that government will collect Sh10 billion this year, but there is potential in the future.”

“It is unlikely that an additional Sh10 billion will be raised this year. The assumption is that the figure is small, but whether government will achieve this depends on the systems it uses,” said John Mutua of the Institute of Economic Affairs.

KRA Commissioner-General, John Njiraini last week said revenue collection is expected to pick up in the second half of the year, with more domestic taxpayers starting to pay up after they exhaust their VAT credits (tax refunds), which have now stabilised at Sh29 billion, unlike before when the amount was growing.

The administration of the VAT Act 2013 is facing fresh challenges with investigations indicating the possible under-valuation of previously zero-rated imports, especially electronics.

Says National Tax Payers Association chairman, Peter Kubebea: “Government must bring all vatable businesses under the tax net through robust ICT platforms that enhance monitoring.”

The government, according to experts, has also failed to expand the tax base to the informal sector. Mr Mutua said VAT collection is pegged at about Sh200 billion a year, about 25 per cent of the total national tax collection figure.