Taxes set to cover only half of Budget

Tax collections are set to cover just half of the Sh3.23 trillion budget for the year starting July, setting the stage for increased borrowing.

The projected revenue from the Kenya Revenue Authority (KRA) is expected at Sh1.621 trillion, leaving another Sh1.6 trillion to be raised through borrowing in internal State revenues like fees and fines.

Treasury Secretary Ukur Yatani will Thursday present a Sh3.239 trillion budget, which is larger than that of the current financial year by 21 percent or Sh553 billion.

The expanded budget in an environment of muted growth in tax revenue collections will raise the budget shortfall, forcing the Treasury into more domestic and external borrowing.

Mr Yatani had started pursing the elusive fiscal consolidation through cuts on non-essential items such as travel and entertainment but the rise in the Budget’s size promises to saddle taxpayers with more debt. The Treasury expects revenue collections from existing and new taxes to rise by Sh131 billion or 8.8 percent from the current year’s projection of Sh1.49 trillion.

The taxman has struggled in recent years to meet collection targets, forcing the government to turn to more debt and also cut on development spending through supplementary budgets.

Mr Yatani had targeted Sh1.856 trillion according to figures published in the 2020 Budget Policy Statement, but trimmed that to Sh1.621 citing the need to adjust to realistic estimates.

The Treasury has also cut appropriation in aid (A-I-A) by 11 percent to Sh221.9 billion and the Railway Development Levy by 2.4 percent to Sh27.15 billion, sending expected total revenues to Sh1.87 trillion.

Genghis Capital head of research Churchil Ogutu estimates that Mr Yatani will borrow about Sh1.335 trillion in the next financial year to finance the shortfall and also cover the maturing debt.

“Although revenue has been slashed, there is concern around revenue realism amidst the Covid-19 shock which will negatively affect revenue streams. This not only applies to the tax streams (income tax, import duty, VAT and customs) but also the internally-generated A-I-A,” he said.

Treasury’s borrowing is usually on net basis and that has been set at Sh823.4 billion.