Tax collections rise at slowest pace

Tax collections in the just-ended financial year grew at the slowest pace in recent history on the back of depressed business profitability and job losses in the second-half which started even before Covid-19 struck.

Official revenue statistics published by Treasury secretary Ukur Yatani showed on Friday total tax receipts in the financial year ended June 2020 rose a measly 0.92 per cent to Sh1.453 trillion compared to Sh1.440 trillion a year earlier.

The nearly Sh13.26 billion growth in tax receipts the Kenya Revenue Authority (KRA) collected is the most sluggish in recent years.

The tax receipts missed the fresh target of Sh1.47 trillion set by Mr Yatani a couple of weeks to the end of the fiscal year 2019-20 by Sh12.74 billion.

The Treasury chiefs revised full-year tax goal three times in the just-ended fiscal year from the original target of nearly Sh1.81 trillion to Sh1.70 trillion in November 2019, Sh1.49 trillion in April and Sh1.47 trillion late last month.

Compared to original estimates, the taxman missed the target by 19.59 per cent or Sh354.18 billion.

The full-year tax collections were largely hampered by a slowdown in business deals in the second half (January-June 2020) which started deteriorating in January and exacerbated when coronavirus hit mid-March, according to findings of a closely-watched monthly survey.

The Treasury data shows tax receipts in the January-June 2020 amounted to Sh674.15 billion, a drop of 11.20 per cent, or Sh85.03 billion, compared with a similar period last year.

The contraction in taxes in the second-half watered down a Sh98.29 billion, or 14.51 per cent, jump in collections to Sh779.32 billion in the first half (July-December 2019).

Collections are usually higher than the first half due to corporate tax payments based on full-year profit in April, a trend which was broken in the just-ended financial year as a result of reduced earnings by businesses and families.

Markit Stanbic Bank Kenya Purchasing Managers Index — a monthly measure of private sector activity such as output, new orders, employment and supplies delivery times — has shown business deals remained in contraction mode between January and June.

Companies have, as a result, kept a tight lid on operating costs through continued layoffs, a trend which accelerated from April due to Covid-19 containment measures with some workers retained on payroll slapped with salary cuts.

This has hit hardest payroll and corporate taxes, which account for more than half of government revenues, while excise and import duty have also been hammered by the reduced consumer purchasing power.

The Treasury was as a result in April forced to offer tax reliefs from to cushion businesses and workers from the economic shocks of Covid-19 pandemic.

Among the reliefs the State offered were excluding workers earning less than Sh24,000 from paying taxes and lowering the maximum employment and corporation tax for resident companies to 25 percent from 30 percent.