The National Treasury has lowered expectations on tax collections from earnings and consumption of goods and services, days to the end of the current financial year, signalling a slowdown in economic activity than earlier projected.
In the latest review, the Treasury has trimmed the targeted receipts from main tax streams — income tax, value-added tax (VAT), excise duty, and import duty — by an additional Sh90.80 billion compared with projections in February.
The Kenya Revenue Authority (KRA) is now seen collecting nearly Sh2.24 trillion from income, VAT, excise, and import taxes compared with the Sh2.33 trillion forecast four months ago.
According to the budget documents tabled in the National Assembly this month, tax targets from the four main sources have now been slashed by Sh423.20 billion since the beginning of the financial year on the back of the withdrawal of Finance Bill 2024 and a general slowdown in economic activity.
The fresh downward revision came after total tax receipts grew a modest 4.28 percent to Sh2.01 trillion in 11 months ended May compared with a year earlier. The taxes rose 10.83 percent in 11 months of last fiscal to Sh1.93 trillion.
The Treasury earlier in the year attributed the downward revisions on “ambitious targets” in an economic setting where activity has been hit by the deterrent cost of borrowing and piling pending bills to government suppliers and contractors.
The Treasury documents show that collections under income tax — largely from earnings by organisations and individuals— have been reduced by Sh105 billion to Sh1.125 trillion, while VAT by Sh151.60 billion to Sh660.6 billion.
The expected receipts from excise duty —largely charged on alcohol, cigarettes, mineral water, juice, cosmetics, and motor vehicles as well as excisable services like airtime, internet, and earnings on loan fees— has been slashed by Sh132.70 billion to Sh296.9 billion, while import duty has been cut by Sh33.90 billion to Sh153.50 billion.
The collapse of the Finance Bill 2024, prompted the enforcement unit at the KRA to enhance the use of various databases to pursue suspected tax cheats. The databases include bank statements, import records, motor vehicle registration details, Kenya Power records, water bills, and data from the Kenya Civil Aviation Authority, which names individuals who own assets such as aircraft.
Car registration details are also being used to smoke out individuals who are driving high-end vehicles, but have little to show in terms of taxes remitted. Kenya Power meter registrations are also helping the taxman to identify landlords, some of whom have been slapped with huge tax demands.
“KRA is investing in resources to collect and analyse intelligence to identify and address tax evasion schemes. Companies and individuals that deliberately evade taxes are subject to investigations and potential prosecution,” Commissioner for Large and Medium Taxpayers Department Rispah Simiyu told the Business Daily earlier this financial year.
“Both third-party and internal data are used to identify businesses that are not adhering to tax laws. Compliance checks are conducted to address non-compliance. The KRA is also exploring integration opportunities with key stakeholders to enhance the effectiveness of information use for improving tax compliance.”
Businesses have, however, complained about stagnating growth in demand for goods and services, citing reduced consumer purchasing power.
Analysis of findings of the Stanbic Kenya Purchasing Managers Index (PMI) shows businesses have generally struggled to sustain growth in sales, prompting them to slow down on output of goods.
“Consumers remain hesitant to spend due to concerns about their economic state and the dim outlook,” Stanbic economist Christopher Legilisho said in the PMI report for May.
The PMI surveys suggest corporate managers in key economic sectors such as manufacturing, agriculture, construction, wholesale and retail, and services like banking have a gloomy perspective on growth in the next 12 months.
In May, for instance, a lowly four out of 100 firms in the private sector reported plans to expand business soon.
