Tax collections in the first quarter of the current fiscal year grew at the slowest pace in at least a decade, excluding the period of the Covid-19 pandemic, reflecting the impact of the withdrawal of the finance bill and business unrest in the wake of deadly Gen Z-led protests.
The Kenya Revenue Authority (KRA) collected Sh525.55 billion in the three months to September, according to new data released by Treasury Secretary John Mbadi.
The collections were a modest 2.20 per cent increase compared to Sh514.26 billion collected in a similar period last year, marking the first single-digit growth in the first quarter since the pandemic period when the government provided tax breaks to households and businesses.
The sluggish performance – compared to an increase of 10.55 percent a year ago – came against the backdrop of a general slowdown in private sector activity amid economic uncertainty caused by anti-government protests and rising interest rates that have hampered investments.
The collapse of the 2024 Finance Bill, which included new and higher tax measures, has left an expected Sh344.3 billion hole in the budget following deadly youth-led protests.
The Treasury has reduced its tax revenue target for the current financial year ending June 2025 by Sh270.15 billion to Sh2.48 trillion.
Kenya’s private sector saw a slight deterioration in business conditions in September as output and new orders contracted again, reversing the brief recovery seen in August, Stanbic Bank reported on Thursday.
The Stanbic Bank Kenya PMI fell to 49.7 in September from 50.6 in August, falling below the 50.0 threshold that separates growth from contraction and marking the third decline in four months.
“Business conditions contracted slightly in September, meaning the rebound in August was due to some recovery after disruptions caused by protests earlier this year,” said Christopher Legilisho, economist at Stanbic Bank.
The Treasury and KRA are betting on a tough crackdown on tax fraud, expanding the tax base, and targeting the growing informal sector.
“In order to strengthen revenue mobilization, the government must implement a range of tax policy and administration reforms,” the Treasury wrote in its draft 2024 Budget Review and Outlook (BROP) this week.
“The reforms include strengthening tax administration to enhance compliance by broadening the tax base, reducing tax expenditures, leveraging technology to revolutionize tax processes, closing revenue gaps, and enhancing the efficiency of the tax system.”
The KRA’s Enforcement Unit has enhanced the use of various databases to prosecute suspected tax fraud, including bank statements, import records, vehicle registration details, Kenyan energy records, water bills and data from the Kenya Civil Aviation Authority (KCCA), which reveals individuals whose private assets e.g. Airplanes.
Vehicle registration details are also used to evict individuals who drive luxury cars but don’t have much to show in terms of remitted taxes. Energy meter registrations in Kenya also help tax officers identify property owners, some of whom have been hit with huge tax demands.
“KRA is investing in resources to collect and analyze intelligence to identify and address tax evasion schemes. Companies and individuals who intentionally evade taxes are subject to investigations and potential prosecutions,” said Local Tax Administration Commissioner Risbah Simiu. Daily chores On September 17th.
“Both third-party data and internal data are used to identify companies that are not complying with tax laws. Audits and compliance checks are conducted to address non-compliance. KRA is also exploring integration opportunities with key stakeholders to enhance the effectiveness of using information to improve tax compliance.”
An analysis of cash flows to the treasury, the government’s main account, indicates a possible rebound in tax revenues in September after a 5.65 per cent year-on-year decline in August to Sh153.33 billion and a slight decline of 2.87 in July to Sh159.51. one billion.
Treasury data showed that KRA generated a net Sh212.72 billion in treasury taxes, an increase of 8.15 per cent from Sh196.68 billion.
To stimulate economic activities, the Monetary Policy Committee of the Central Bank of Kenya has begun sending signals to banks to cut interest rates after cutting the benchmark lending rate by 100 basis points since August.
Findings from the closely watched Stanbic Kenya Purchasing Managers’ Index (PMI), based on feedback from about 400 participants, suggest that companies are generally reducing production and hiring in response to weaker demands for goods and services.
“The companies surveyed recorded a slight decline in their activity levels at the end of the quarter, coinciding with a renewed decline in new business intake,” analysts at Stanbic Bank and US analytics firm Standard & Poor’s Global wrote in their September PMI report.
“Anecdotal evidence suggests that difficult economic conditions faced by clients, such as reduced cash flow, have led to decreased business acceptance at the companies surveyed.”
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