Government takes a Sh71.5 billion tax hit in five months

The government has lost Sh71.5 billion in taxes in the first five months since the start of the coronavirus pandemic in Kenya. The pandemic has led to businesses shutting down and workers being laid off following stringent containment measures.Latest official data shows that between March and July, the Kenya Revenue Authority (KRA) collected Sh575.9 billion from taxpayers, an 11 per cent drop compared to Sh647.4 billion that the taxman netted in the same period last year.

Value Added Tax (VAT) recorded the worst performance, with the Exchequer collecting Sh36 billion less between April and June from sales of various goods and services compared to the same period last year.

In the five months to July, tax collection dropped except in March when the taxman netted an additional Sh5.6 billion.

June was KRA’s worst month, with the tax authority registering a drop of Sh27.4 billion from Sh150.9 billion it got in the same month last year.

A drop in tax collection saw the National Treasury plunge deeper into the debt market as it moved to plug the budget hole left by the lower taxes.

Githii Mburu, the KRA Commissioner General said in a statement that the worst hit tax head in the financial year 2019/20 was domestic value-added tax which recorded seven per cent from an average growth of 2.8 per cent recorded between July 2019 and February 2020.

“The performance of the tax head (VAT) was majorly impacted by the Covid-19 pandemic, which saw business turnovers decline.

“In addition, reduction of VAT rate from 16 per cent to 14 per cent also had an adverse effect on the tax head’s performance,” said Mburu while announcing the revenue performance for the fiscal year that ended on June 30.

Between April and June, KRA collected Sh78.1 billion in VAT, also known as consumption tax compared to Sh114.1 billion that it collected in the same month in 2019. This was due to muted demand for goods and services arising from the containment measures, including the dusk-to-dawn curfew that reduced business hours.

Taxes paid by permanent employees — pay-as-you-earn (PAYE)—reduced by Sh11 billion between April and June. KRA collected Sh88.6 billion in the three months compared to Sh98.7 billion that it managed to get in the same period last year.

Since Kenya registered its first Covid-19 case, a lot of businesses have been forced to downsize following stringent containment measures aimed at curbing the spread of the viral disease.

Mburu noted that the slow growth in PAYE “was driven by decline in employment rate in the fourth quarter emanating from measures taken by mainly private firms to reduce operating costs.”

“The tax head was also majorly affected by the reduction of the top PAYE rate from 30 per cent to 25 per cent and a 100 per cent tax relief for persons earning below Sh24,000 per month,” said Mburu in a year that saw the taxman collect Sh1.6 trillion.

Most of the sectors that have been impacted include hospitality, aviation, transport, real estate, and trade which have been forced lay-off workers, a situation that saw the taxman collect less taxes.

Most hotels, airlines, schools, nightclubs, pubs and other entertainment joints remained closed for a better part of the period under review, with most of them either firing workers or sending them on an unpaid leave in compliance with strict social distance rules.

The government also took a huge tax hit between April and June as bars and other entertainment venues were shut to contain the spread of the coronavirus disease.

Data from the Treasury shows the taxman lost Sh16.8 billion in excise taxes, commonly referred to as sin taxes as they are levied on products like beer, cigarettes and spirits.

As Covid-19 ravaged the country, the government was forced to curtail Kenya’s vibrant entertainment scene, a catalyst for the consumption of alcoholic drinks and smoking. And it cost State coffers.

Further, the move to waive fees on mobile banking denied the government another critical source of excise taxes.

The latest data from the Treasury shows that in the fourth quarter of the 2019/20 financial year, the Exchequer received Sh35.7 billion in excise duty, a drop from Sh52.5 billion collected over a similar period last year.

The consumption of alcohol was impacted negatively by closure of bars, social distancing rules, as well as restrictions on social gatherings, such as weddings and parties.

KRA noted that domestic excise duty recorded a decline of 6.4 per cent in the financial year that ended in June, a dip from an average growth of 4.3 per cent recorded between July last year and February.

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