Regina Mwangi and Kiema Kaumbu @PeopleDailyKe
Kenya’s budget has grown exponentially over the years to trillions of shillings, with the growth trajectory predicted to continue in the 2019/2020 financial year.
Taxation is the largest source of revenue for the government, with Kenya Revenue Authority (KRA) tasked with collection of taxes to finance the budgeted expenditure.
Consequently, the government has passed several amendments to tax legislation aimed at increasing tax revenues and widening the tax base.
The taxman has also been changing tact year-on-year with adoption of new and advanced revenue collection measures in a bid to accelerate revenue collection to meet the ever-increasing collection targets.
Some of the tactics adopted by the authority to raise revenues through increased audits and tax controls have tightened the noose around taxpayers’ necks.
However, despite the enhanced legal and technological infrastructure, KRA has missed its targets over the past five years.
Undeterred by the persistent budget deficits in previous years, the government is still optimistic that in the 2019/2020 financial year, the overall deficit will fall to 5.6 per cent of gross domestic product (GDP), from 6.3 per cent in 2018/2019.
The availability of cheap credit – both locally and externally – has increased the government’s expenditure appetite, leading to the current debt burden which the government is struggling to service.
Consequently, Treasury has had to revise revenue targets upwards increasing the pressure on KRA. This is despite the fact that the taxman has not managed to meet its targets over the years, even when targets are revised downwards.
In the 2017/2018 financial year, the taxman was tasked with collecting Sh1.49 trillion which was revised downwards to Sh1.44 trillion and further reduced to Sh1.42 trillion.
Despite these revisions, KRA only managed to collect Sh1.37 trillion. Even though recurrent expenditure consumes about 76 per cent of budget, revenue shortfalls often result in diversion of funds from development to recurrent expenditure.
The inevitable result of this mismatch is slower implementation of some projects leading to higher project costs, accumulation of pending bills and delayed return on investment.
This slows down the collection of revenues, perpetuating the gap between target and actual collections.
Estonia, a country Kenya should borrow from, has been ranked first for the fifth time in a row, as the country with the best tax code.
A country with low tax rates such as Estonia will – ceteris paribus – have an accelerated economic development as more and more individuals and companies flee from jurisdictions with high tax rates.
The writers are Tax and Regulatory Services Seniors at KPMG Advisory Services Ltd and can be reached at [email protected] & [email protected] The views and opinions are those of the authors and do not necessarily represent those of KPMG Advisory Services Ltd.