NAIROBI, KENYA, FEB 12 — Kenya’s overall revenue for the first half of financial year 2017-18 grew by Ksh62.5 billion to Ksh712.2 billion from Ksh649.7 billion recorded in the previous year, latest Kenya Revenue Authority data shows.
Exchequer revenue grew more strongly by 10 per cent to reach Ksh664.77 billion up from Ksh604.27 billion in 2016/17.
This growth compares well with the three -year (2014/15 to 2016/17) average exchequer revenue growth of 10.5 per cent.
“The overall growth, representing 9.6 per cent rise was recorded against the backdrop of a depressed economic climate occasioned by the prolonged election cycle that stretched for the better part of calendar year 2017,” KRA Commissioner General John Njiraini noted on Monday.
The prolongation according to knowledgeable business sources adversely affected business confidence and depressed consumer spending, leading to weak performance in consumption related taxes especially in the nonessential goods sectors including beverages.
Moreover, delayed normalisation of the government’s fiscal programme adversely impacted both public and private sector tax remittances, the latter due to delayed settlement of bills.
Overall, economic growth for the period slowed to an estimated 4.4 per cent against the 6.0 per cent used in Budget Policy Statement (BPS) projections.
For the second half of the financial year, focus has shifted to leveraging the improved business environment following the conclusion of elections, a development expected to lead to a normalised government fiscal programme and improved business climate.
KRA targets to raise Ksh798.84 billion in half two of the current financial year, ending June 30, as part of the drive to generate resources to fund the ambitious “Big four Agenda” announced by President Uhuru Kenyatta, on Jamhuri Day, 2017.
The prolonged political season that saw a repeat of the presidential election coupled with delayed release of funds to government suppliers and County governments had the effect of dampening revenue collection.
On its part, the economy grew at 4.4 per cent against the 6% projected in the BPS.
Average inflation rate stood at 6.2 per cent but mainly affecting the non-taxable food sector.
The growth achieved for half one is attributable largely to better compliance enhancement efforts largely underpinned by technology and other reforms implemented in the recent past.
The iTax system presently provides a valuable treasure of data collected about business transactions by persons, including businesses doing business with government and the top 6500 plus of Kenya’s largest corporate entities.
“This data is now being mined and used to issue tax assessments against previously non-registered persons or registered taxpayers whose filings materially differ from the declarations they submit to KRA,” Njiraini said in a statement.
To date assessments totalling Ksh29.6 billion have been issued and collection efforts are in progress, he noted.
On the side of Customs, consistent focus on valuation benchmarking and cargo scanning has shored up revenues by Ksh3.1 billion for the period under review, pushing customs collection to Ksh235.6 billion up from Ksh218.7 billion in financial year 2016/17.
Value Added Tax recorded a growth of 7.5 per cent mainly driven by the expansion of withholding VAT framework which now encompasses almost 7,000 agents.
Sectors that exhibited robust growth include telecommunications, transport and energy, while depressed growth was recorded in agriculture, manufacturing, construction and mining sectors.
VAT has consistently performed strongly since 2013 with annual growth averaging 21.5 per cent.
Income Taxes (Corporation Tax, PAYE)
Corporation tax grew by 7.2 per cent in half one with the key banking sector recording growth of 11.1 per cent.
Profit performance within the sector was mixed with several Tier one banks issuing profit warnings whereas a sizeable proportion of Tier 3 banks recorded losses.
Other sectors that recorded improved growth were telecommunication (16.1per cent) construction (124%); and transport (40.0%).
As would be anticipated, weakest growth was recorded in the manufacturing sector, while the energy sector performed poorly, a fact mainly attributed to high investment deductions.
Pay As You Earn recorded growth of 9.2 per cent driven by improved compliance within the public sector following the establishment of a dedicated compliance programme within KRA for this critical sector.
The new compliance programme focuses on education and compliance support interventions geared towards helping public enterprises better understand requirements, with a resultant 29.5 per cent growth in remittances from the sector.
PAYE from large private firms recorded subdued growth of 2.4 per cent with key sectors such as construction, wholesale, retail, agriculture and transport collectively declining by 5.8 per cent.
Domestic excise tax recorded the worst performance, declining by 9.0 per cent in half one compared to annual average growth of 16.0 per cent over the previous three years.
Remittances from the main excise sectors of beer, tobacco and spirits, declined by 8.4 per cent, attributed largely to drop in volumes; 16.0 per cent for tobacco, 11.2 per cent for spirits and 16.3 per cent for beer.
Industry analysts term the performance as unusual given what would otherwise have been a strong season given election related consumption.
There are however indications of recovery with January 2018 figures showing reversal of trend with recorded growths of 6.8 per cent and 1.8 per cent for alcohol and tobacco respectively.
Customs recorded overall growth of 7.7 per cent , with non-oil collections, which account for about 70 per cent of revenue growing at 8.1 per cent.
Improved performance is largely attributed to tighter enforcement through among others benchmarking of cargo values to address undervaluation, greater use of scanners and stricter application of cargo auction processes.
“This has resulted in average daily collection for non-oil revenue increasing from Ksh 1.126 billion in half one of 2016-17 to Ksh1.257 billion in half one of 2017-18, an increase of Ksh131 million per day,” Njiraini said.
Customs performance however continued to be adversely impacted by sluggish import growth with container volumes in half one recording a marginal growth of 2.8 per cent compared to growth of 4.9 per cent in half one of 2016-17.
Revenue enhancement programme
KRA targets to collect Ksh798.84 billion in half two of the current financial year.
This, Njiraini said, will be achieved through among other measures – utilization of data collected through iTax to net the non-compliant and deliberate evaders, aggressive debt collection expected to net Ksh15.3 billion and revamped rental income programme expected to net additional 20,000 landlords.
The taxman is also counting on enhance cargo scanning by customs following commissioning of a second container scanner at Mombasa Port and tighter control over cargo scanning.
This follows the launch of centralized scanning control through the Scanner Command and Control Centre expected to become operational by March 2018.
The authority is also leveraging on expedited tax dispute resolution through KRA’s revamped Alternative Dispute Resolution (ADR) programme expected to deliver Ksh2.7 billion.
“These initiatives and other programmes targeted at encouraging voluntary compliance through more responsive service will help deliver better revenue outcomes for half two of financial year 2017/18 and beyond,” Njiraini said.