Tough times ahead as taxman misses half-year revenue target

 

The Kenya Revenue Authority headquarters at Times Towers in Nairobi. PHOTO | FILE 

By ALLAN ODHIAMBO and GIDEON KIARIE

In Summary

• The shortfall mainly arose from a dip in payroll taxes and delayed application of the Excise Duty Act 2015.
• The steep fall in payroll taxes is consistent with recent developments on the corporate scene where a number of big employers have laid off staff citing higher financing costs.
• The situation has been compounded by the fact that the government has also frozen the recruitment of non-essential staff.

The Kenya Revenue Authority (KRA) missed its half -year tax collection targets by a massive Sh47.6 billion, signalling a possible widening of the budget deficit with far-reaching consequences on the economy.

Newly-released data indicate that the shortfall mainly arose from a dip in payroll taxes and delayed application of the Excise Duty Act 2015.

The Treasury said there was a huge shortfall in ordinary revenue collection made of a Sh26 billion deficit in Pay-As-You-Earn (PAYE) revenue and a Sh15.9 billion shortfall in Value Added Tax (VAT) collection from imports.

No actual half-year ordinary revenue targets have been published but the report says that by the end of December 2015, the total cumulative revenue, including Appropriations-In-Aid (AIA), amounted to Sh575.2 billion against a target of Sh642.9 billion, implying a total shortfall of Sh67.7 billion.

“Ordinary revenue collection was below target by Sh47.6 billion while A-I-A collection fell short of target by Sh20 billion,” the Treasury says in the latest Budget Policy Statement that reveals how harder financing the Sh2.1 trillion budget will be.

The shortfall in revenue performance is a continuation from the first quarter when KRA reported a Sh300 billion collection against a target of Sh328 billion.

The steep fall in payroll taxes is consistent with recent developments on the corporate scene where a number of big employers have laid off staff citing higher financing costs in the wake of a steep rise in interest rates and stiff competition from Chinese and Indian products.

The situation has been compounded by the fact that the government has also frozen the recruitment of non-essential staff.

READ: KRA reports Sh28bn first quarter revenue shortfall

The difficult operating environment facing the corporate sector has reflected in a steep increase in the number of publicly traded firms that have warned investors of an impending drop in earnings or even losses.

Up to 18 companies have issued profit warnings since last year, signalling a drought in bonus payments and, in some cases, retrenchments.

The list of public companies that expect a slump in earnings includes Liberty Kenya Holdings, Britam, Express Kenya, Standard Group, Sameer Africa, Atlas Development, BOC Gases, TPS Eastern Africa, Crown Paints, Standard Chartered, Uchumi Supermarkets, ARM Cement, Mumias Sugar, Car & General and East African Cables.

KRA has also blamed the missed collection targets on delayed roll-out of the Excise Duty Act 2015 from which the government sought to raise an additional Sh25 billion to help fund the Sh2.1 trillion budget.

The new tax law ultimately came into force in December, pushing up the prices of key consumer goods such as beer, juices, water, second-hand cars and motorcycles.

Beer prices went up Sh30 per litre, kerosene (Sh5.75 a litre), bottled water (Sh7 a litre), juice (Sh10 a litre) while a charge of Sh10,000 was imposed on imported motorcycles.