Revenue Authority Expects Treasury Will Revise Tax Targets

Business Daily (Nairobi)

Allan Odhiambo

2 May 2011

The Kenya Revenue Authority expects Treasury to revise its revenue targets to reflect recent tax cuts on kerosene, maize and wheat imports aimed at cushioning poor households from soaring inflation.

The government set KRA’s revenue collection target at Sh641.2 billion for the current fiscal year that runs until end of June, up from Sh534.4 billion collected during the previous year.

On Thursday the revenue body said it had collected Sh444.5 billion in 9 months of the 2010/11 fiscal year, representing a 16 per cent growth in the first three-quarters.

KRA did not however say whether the performance was within the target set by Treasury.

“We are yet to receive official communication from Treasury but when we do we shall be expecting revisions in our targets so that the expectations tally with the reality of the day,” said Kennedy Onyonyi, the head of communications at KRA.

In a proposal to Parliament last week, Prime Minister Raila Odinga said the government envisaged scrapping all taxes on kerosene, wheat and maize to help curb runaway inflation that has now hit 12.05 per cent.

“Our people are adversely affected by these high prices. The Government will implement a strong package of measures to cushion the poor and vulnerable. Such measures are both short-term and long-term,” he told Parliament.

Kerosene is used by the bulk of the country’s 40 million people for cooking and lighting because many homes lack electricity.

Maize and wheat are the dominant food staples in Kenyan households.

Mr Onyonyi said that if endorsed by Parliament, the proposal to scrap duty on the three main items is certain to erode the country’s revenue collection performance.

“It is definite that the proposed scrapping of taxes will have a negative bearing on our targets,” said Mr Onyonyi.

The country’s revenue collection is already strained by the drop in mobile telephony costs, reduced uptake of petroleum products and a revision in the taxation regime for cigarettes.

“A fall in airtime, cigarettes and oil taxes casts a cloud of doubt on the realisation of the Sh641 billion target by June,” said Sterling Investment Bank in a report.

KRA commissioner general Michael Waweru said in the third quarter report that a harsh marco economic environment since the start of the year is expected to deal a further blow to revenue collection targets as the fiscal year entered its final quarter.

The economy has since January endured the pains of spikes in inflation and interest rates and fluctuating currency exchange rates.

KRA is expected to collect Sh180.4 billion in the fourth quarter of 2010/11, translating to a growth rate of 19.8 per cent over the Sh150 billion collected in the fourth quarter of 2009/10.

“The rising food and fuel prices coupled with declining activity at the Nairobi Stock Exchange is expected to adversely affect revenue performance in the fourth quarter of 2010/11 fiscal year,” Mr Waweru said.

“Despite the strength exhibited by the Kenyan economy over 2010, the third quarter was characterised by macro economic instability. This state of affairs does not augur well for revenue performance going forward,” he added.

The latest developments of dwindling revenue fortunes are expected to further squeeze the government into a tight spot as it grapples with huge expenditure outlays such as the implementation of the new constitution that provides for a devolved system of governance.

“The government is clearly caught between a rock and a hard place but caution my be taken to keenly weigh the cost of the tax scraps or risk running into serious cash crisis in the final quarter of the fiscal year,” Robert Shaw, an independent economic analyst said.

“The expenditure requirements going forward are huge and any major negative variations on revenue collection could come with pain.”

High expectations

According to the Finance ministry, the country expects to collect revenues to the tune of Sh774.7 billion or 25.2 per cent of GDP in the 2011/2012 fiscal year.

As part of efforts to ensure such goals are met, the government has already floated a raft of measures including plans to remove tax incentives in the 2011/12 (July-June) fiscal budget and widen collection to rope in more small businesses to increase revenues.

Finance Minister Uhuru Kenyatta said in March that presently some value added tax exemptions given as investment incentives were not beneficial and resulted in losses.

The International Monetary Fund has also stated that the country could get an extra Sh40 billion in tax by better collection of value added tax, widening tax brackets and cutting exemptions on imports.

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