Job cuts leave KRA with Sh29bn in­come tax gap

SQUEEZE Em­ployee layo s and lag­ging pro its the big­gest con­trib­u­tors to short­fall

Business Daily (Kenya) - - FRONT PAGE - Geo rey Irungu­tion­

Shrink­ing com­pany pro ts and em­ployee layo s by strug­gling rms slashed the tax­man’s rev­enue pro­jec­tion by Sh68.6 bil­lion last year, a new Trea­sury re­port has shown. The two tax cat­e­gories con­trib­uted the most to Kenya Rev­enue Author­ity’s (KRA) Sh124.6 bil­lion to­tal short­fall for the 2017/18 nan­cial year, ac­cord­ing to the Trea­sury data re­leased early this month. KRA col­lected Sh1.36 tril­lion in the year, fall­ing be­low the Sh1.49 tril­lion tar­get. To­tal rev­enue col­lec­tion, in­clud­ing fees and penal­ties levied by gov­ern­ment min­istries, hit Sh1.49 tril­lion last year against a tar­get of Sh1.66 tril­lion. The rev­enue short­fall raises concerns as to whether

concerns as to whether the gov­ern­ment can raise up to Sh1.949 tril­lion pro­jected in the cur­rent (2018/19) fi­nan­cial year – a 17.5 per cent in­crease from last year’s tar­get. Rev­enue short­fall in suc­ces­sive years has seen the Trea­sury turn to mas­sive bor­row­ing to fi­nance the re­cur­rent bud­get, fund de­vel­op­ment projects and re­pay pub­lic debts that has now crossed Sh5 tril­lion. The cash crunch has seen the Trea­sury strug­gle to make dis­burse­ments to min­istries, depart­ments and agen­cies (MDAS) as well as to coun­ties. Pay­roll and cor­po­rate in­come taxes were the big­gest un­der­per­form­ers in gen­er­at­ing State rev­enues in a year char­ac­terised by poor com­pany prof­itabil­ity and loss-mak­ing that saw thou­sands lose their jobs. In­come tax paid by salaried work­ers in form of Pay As You Earn (PAYE) fell Sh29.2 bil­lion short of tar­get, as “other” in­come taxes in­clud­ing those paid by com­pa­nies were Sh39.5 bil­lion short of tar­get. Rev­enue col­lected within min­istries and grants from donors (de­scribed as ap­pro­pri­a­tions-in-aid or A-I-A) also fell short of tar­get by Sh47.8 bil­lion. Ex­cise duty, which is payable on con­sumer goods, raised Sh179.4 bil­lion that was Sh16.9 bil­lion be­low pro­jec­tion, val­ued added tax (both lo­cal and on im­ports) was be­low tar­get by Sh21.2 bil­lion while ex­pected in­vest­ment in­come was Sh7.4 bil­lion short. An anal­y­sis by the In­ter­na­tional Bud­get Part­ner­ship (IBP), an in­ter­na­tional NGO that mon­i­tors na­tional and county bud­gets, shows that the key rea­son for the fail­ure to meet bud­get tar­gets over the past four years is at­trib­ut­able to un­re­al­is­tic rev­enue pro­jec­tions. “We have al­ready seen that these ex­pec­ta­tions are not re­al­is­tic; the na­tional gov­ern­ment only takes in 20 per cent of to­tal rev­enue in the first quar­ter, and 46 per cent by the end of De­cem­ber. Ad­di­tion­ally, the data shows that nei­ther MDAS nor Con­sol­i­dated Fund Ser­vices re­ceives even 46 per cent by the end of the sec­ond quar­ter; on av­er­age, MDAS re­ceive 43 per cent of their an­nual rev­enue by De­cem­ber. It is un­likely that coun­ties re­ceive more than this,” says the IBP anal­y­sis. IBP re­searcher John Kin­uthia says the re­cur­rent prob­lem of fail­ure by gov­ern­ment agen­cies and coun­ties to re­port their cash col­lec­tions was be­hind the short­fall in ap­pro­pri­a­tions-in-aid tar­gets. “We noted the prob­lem of un­der­per­form­ing AIA since 2013 but it is a won­der that the Trea­sury keeps on talk­ing about it with­out re­solv­ing it. We should have now known how to deal with un­der-reporting if that is the case,” says Mr Kin­uthia. Dur­ing the first half of the fi­nan­cial year ( July to De­cem­ber 2017), over a dozen com­pa­nies listed on the Nairobi Se­cu­ri­ties Ex­change is­sued profit warn­ings and many con­tin­ued to re­port staff cuts in the sec­ond half of the fis­cal year end­ing June. Data compiled by the Busi­ness Daily shows that Nse-listed firms shed more than 4,250 jobs as they sought to re­duce costs to shield their bot­tom line in a year that also saw a Gen­eral Elec­tion, as well as two pres­i­den­tial elec­tions. The econ­omy also sunk to a five-year low to a GDP growth of 4.9 per cent. IBP says that MDAS and coun­ties typ­i­cally re­ceived less than 50 per cent of the sched­uled amounts dur­ing the first half of each year as rev­enue col­lec­tions were be­low tar­get, even though the bud­get­ing was done as if the pro­jec­tions would be at­tained. The an­a­lysts say that coun­ties, for ex­am­ple, ended up each with un­spent bank bal­ances be­cause the Trea­sury had made pro­jec­tions of dis­burse­ments that were out of line with the re­ceipts. “To im­prove fund­ing pre­dictabil­ity and avoid ser­vice in­ter­rup­tions, the Se­nate should en­sure that the cash flow ap­proved for county fund­ing is pegged on re­al­is­tic ex­pec­ta­tions of rev­enue and ap­provals from the Office of the Con­troller of Bud­get,” says IBP. Mr Rotich in his June bud­get state­ment said that fis­cal con­sol­i­da­tion (a by­word for aus­ter­ity) was planned for this year, but he put for­ward higher spend- ing pro­jec­tions of Sh2.56 tril­lion com­pared to the pre­vi­ous year’s spend­ing of Sh2.11 tril­lion. IBP notes that the Trea­sury fre­quently failed to ex­plain the poor rev­enue per­for­mance in its re­ports, such as the lat­est one. “The quar­terly eco­nomic and bud­get re­views fail to pro­vide ad­e­quate rea­sons for per­for­mance in rev­enue and ex­pen­di­ture. In many cases, there are no ex­pla­na­tions. Where ex­pla­na­tions are pro­vided, they fail to iden­tify the root causes of poor per­for­mance and do not ex­plain vari­a­tions in per­for­mances. They also fail to ac­knowl­edge pre­vi­ous ex­pla­na­tions or changes over time,” says IBP.


TAX­MAN Mr John Nji­raini, KRA com­mis­sioner-gen­eral.

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