Taxman, World Bank disagree over collection targets

(Photo Courtesy) By Lee Mwiti 

In summary Bank argues that tax revenues expanded by less than nominal GDP But taxman maintained that its collection reached a new record of Sh1.37 trillion compared to the previous year ?The taxman has clashed with the World Bank for downplaying its revenue collection.

The lender accused the State of running huge deficits that have been plugged with more debt. ALSO READ: Shared rides - A solution for the future? According to the Kenya Revenue Authority (KRA), revenue collection in 2016/17 financial year reached a new record with Sh1.37 trillion being collected in comparison to Sh1.21 trillion collected in the 2015/16 financial year, a growth of 13.8 per cent.

“The 2016/17 financial year growth represented an improvement over the previous year’s performance of 12 per cent and compares well with the five-year average growth trend of 14.3 per cent,” KRA said in a statement signed by Mohamed Omar, the commissioner for strategy, innovation and risk management.

But according to the World Bank (WB), although KRA’s revenue collection grew by that margin, the tax revenues expanded by less than nominal gross domestic product (GDP), which stood at 14.9 per cent.

Therefore, the tax-to-GDP ratio, a measure of tax collected compared to value of all goods and services produced by a country, fell to 16.9 per cent, being the lowest in a decade. This was highlighted in World Bank’s 16th edition of the Kenya Economic Update report.

Nominal GDP, unlike real GDP, uses market prices that have not been adjusted for inflation. In the period under review, inflation averaged 8.13, according to data from the Central Bank of Kenya. Conflicting Review In a conflicting review by KRA, Dr Omar said the country’s tax-to-GDP ratio stood at 17.1 per cent, terming it among the highest in non-oil economies in Africa and the highest in the EAC region, where the average stands at 14.8 per cent.

Tax revenue, said the Bretton Woods institution, was not keeping pace with expansion in expenditure and buoyancy of economic growth, bringing into question KRA’s aggressive efforts to ensure tax compliance.

ALSO READ: How failure turned Mercy Kyallo into a better entrepreneur The World Bank added that despite stable VAT, excise duty, and import duty of 4.4, 2.1, and 1.2 per cent of GDP respectively, the drop in the tax-to-GDP ratio was occasioned by subdued growth in both personal income and corporate income taxes. This is consistent with slowed demand in the private sector. The global lender has also warned the State on Kenya’s ballooning debt, which has continually been used to fill huge revenue deficits and fund ambitious infrastructure projects.

According to data from the Central Bank, Kenya’s total public debt as of September 2017 stands at Sh4.5 trillion. Ambitious reforms KRA has said that it is going to embark on ambitious reforms to enhance tax collection such as enhanced cargo scanning, the rolling out of the Integrated Customs Management System, and emphasising data-driven compliance. “Data-driven compliance will provide evidence of under/non-declaration of output and excessive claim of inputs.

The tax base is being broadened to bring on board individuals and firms including from the informal sector, professionals, the gaming and betting sector, and high net worth individuals,” said Omar.