Missed tax targets push Rotich to local borrowing

Politics and policy

Kenya Revenue Authority commissioner-general John Njiraini. The Treasury is projecting a full year revenue shortfall of Sh17.8 billion. PHOTO | FILE 

By ALLAN ODHIAMBO, aodhiambo@ke.nationmedia.com

In Summary

• KRA had a revenue shortfall of Sh23.5bn for the half year as State faces extra expenditure.
• The Treasury is projecting a full year revenue shortfall of Sh17.8 billion as it faces additional expenditures amounting to Sh61.7 billion, noted a budget policy document released Wednesday.
• The impact of the revenue shortfall is additional domestic borrowing of Sh46 billion.

The Kenya Revenue Authority (KRA) missed its tax collection targets in the six months to December, pushing the Treasury to opt for domestic borrowing to plug expected revenue shortfalls of Sh17.8 billion in the current financial year.

The Treasury says tax collection stood at Sh453.68 billion in the period under review, which is Sh23.5 billion short of the half year target of Sh477.1 billion.

It is projecting a full year revenue shortfall of Sh17.8 billion as it faces additional expenditures amounting to Sh61.7 billion, noted a budget policy document released Wednesday.

“The impact (revenue shortfall) is additional domestic borrowing of Sh46 billion” said the policy document.

In the six months to December, the KRA’s collection of income tax was Sh12.2 billion short of the Sh251.4 billion target, VAT (Sh6.1 billion), import duty (Sh4 billion) and excise duty (Sh1 billion).

Kenya’s economic growth slowed to 5.5 per cent in the three months to September from 5.8 per cent in the previous quarter due to a sharp drop in tourism following terrorism attacks in the country, but benefited from robust construction and agriculture sectors.

Tourism contracted by 14.6 per cent, affected by a string of deadly attacks in Lamu, Mombasa and northern Kenya.

The projected increase in domestic borrowing by the Treasury is expected to cause jitters among private sector players as competition for funds could ultimately make bank loans more expensive.

“The government’s return to the domestic market even after the recent large activities in the international market could point to trouble and trigger rises in the cost of borrowing locally,” said a fixed income dealer who requested for anonymity.

President Uhuru Kenyatta in August last year said the government planned to cut domestic borrowing by nearly 50 per cent this financial year to allow lower interest rates that would boost the private sector.

READ: Treasury to cut domestic borrowing by half, Uhuru says

He said the State will be looking to raise more money on the international markets with sukuk and samurai bonds – Islamic and Yen-denominated sovereign debt instruments.

“The extra supply of cash will, therefore, hopefully help to bring down bank lending rates to the productive sectors of the economy,” the President said in a dispatch.

Heavy domestic borrowing by the government has been partly blamed for high interest rates as banks factor expensive deposits costs while pricing their lending rates.

The Central Bank of Kenya’s Monetary Policy Committee last week cut the reference rate to 8.54 per cent from 9.13 per cent set in July.