KRA blames cash crisis on jobs slump

Kenya Revenue Authority (KRA) Commissioner-General John Njiraini at a past media briefing. Mr Njiraini on October 29, 2015 said the KRA had failed to meet its tax collection targets for the first three months of the year because of the slow job market. PHOTO | DIANA NGILA | NATION MEDIA GROUP 

In Summary

• Kenya Revenue Authority boss John Njiraini told MPs that the poor performance of income-based taxes — Pay As You Earn and corporation tax — was due to retrenchments by big companies, reduced profits and a freeze on State employment.
• The taxman collected Sh167.6 billion in domestic taxes between July and September, which was Sh18.3 billion below the target of Sh186 billion.
• Samburu West MP Lati Lelelit said apart from the intention to pay off the syndicated loan, nothing else appeared to have worked to plan.

By JOHN NGIRACHU
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The Kenya Revenue Authority on Thursday said it had failed to meet its tax collection targets for the first three months of the year because of the slow jobs market.

The low tax collection between July and September was one of the reasons the government has been in a financial crisis.

The others are wastage and mega corruption in government.

Revenue authority boss John Njiraini told MPs that the poor performance of income-based taxes — Pay As You Earn (PAYE) and corporation tax — was due to retrenchments by big companies, reduced profits and a freeze on State employment.

The taxman’s research indicated that the sharp drop in tax collection was caused by a freeze in pay raises for civil servants and the fact that employment in the private sector had slowed down.

This is a sign that the economy is under-performing.

“For the past two financial years, major corporates have reported declining (profits), with a significant number projecting flat or declining growth for 2015/2016,” said Mr Njiraini.

Pay As You Earn was hit by the delayed release of funds to public institutions.

REVENUE COLLECTION CHALLENGES
The taxman cited the Teachers Service Commission’s refusal to pay teachers their September salaries as an example.

Failure to pay the salaries meant that income tax could not be collected from the over 240,000 teachers who missed their September pay.

The taxman collected Sh167.6 billion in domestic taxes between July and September, which was Sh18.3 billion below the target of Sh186 billion.

Tax from customs and border control also failed to meet the target, with a collection of Sh132.6 billion against a target of Sh141 billion.

The National Treasury has in the past blamed the revenue authority for the cash crunch that has hit the government, arguing that it had failed in its duty due to systematic inefficiencies that led to pilferage of revenue.

It has also questioned the fidelity of staff in tax collection and ordered a lifestyle audit.

On Wednesday, however, Mr Njiraini told the Budget and the Finance committees of the National Assembly: “There is no evidence of a notable breakdown in the revenue collection system. Rather, there are specific areas within which challenges and causes of under-performance have been identified and remedial action commenced.”

However, MPs questioned his explanation, with Mr Samuel Gichigi (Kipipiri, APK) saying he was aware the authority had problems with its revenue collection system and that it depends on banking slips as proof of payment.

Mr Moses Lessonet (Eldama Ravine, URP) said the decline in PAYE revenue should have resulted in an increase in income tax from companies with fewer employees.

“This is more theoretical than practical and you should bring a comprehensive reason when you present the documentation,” he said.

Mr Njiraini admitted there had been a problem with the system, making it difficult for businesses that are not registered in the electronic system to pay taxes but said that would be corrected within a month.

MPS NOT CONVINCED

National Treasury Cabinet Secretary Henry Rotich was taken to task over how the money raised from the sovereign bond was spent and the perception that it failed to have the effect on the economy that he had predicted when he convinced MPs to approve it.

Mr Rotich said some of the money from the bond had been used to pay off a syndicated loan and the rest on pending bills owed to contractors who had worked on infrastructure projects such as roads.

He said the money had also been spent on constructing dams and water pans as well as on the Galana irrigation project, through which the government plans to have one million acres under irrigation.

MPs were, however, unhappy with his explanations.

“You told us it would affect interest rates and the exchange rate. One year down the line, we’re doing the opposite of what you promised,” said Finance Committee chairman Benjamin Lang’at.

Samburu West MP Lati Lelelit said apart from the intention to pay off the syndicated loan, nothing else appeared to have worked to plan.

But Mr Rotich said every currency has depreciated against the dollar and pointed out that interest rates had dropped to as low as eight per cent and would have increased last year had the $2.75 billion been borrowed domestically.

“We should not look at what happened recently and conclude simplistically that we have not achieved what we wanted to,” he said.