The Kenya Revenue Authority (KRA) missed its target for the full year ended June by Sh267 billion, hurt by reduced corporate profits and job cuts in a period when businesses were devastated by the depreciation of the shilling and high energy prices. The taxman collected Sh2.22 trillion in ordinary revenue, an increase of 9.5 percent from Sh2.03 trillion that it received in the fiscal year ending June 2023.
KRA aimed to collect Sh2.76 trillion by the end of June 2024, which was revised downwards to Sh2.49 trillion after the Treasury tabled the second supplementary budget towards the end of the fiscal year. In total, KRA—which also collects other taxes on behalf of other state agencies—collected Sh2.40 trillion in the year ending June, compared to Sh2.16 trillion collected in the same period last year.
This is President William Ruto’s first full fiscal year, which has been characterised by the introduction of unpopular tax measures that informed the anti-tax riots that recently rocked the country. Corporation Income Tax (CIT), which is paid by profits, grew at a slower rate of 4.9 percent to Sh278.2 billion compared to a growth of 7.2 percent in the previous financial year.
Impact on Key Sectors
KRA Commissioner-General Humphrey Wattanga noted that income tax from finance and insurance, information and communication, and manufacturing declined by 2.4 percent, 12.3 percent, and 13 percent, respectively, with the taxman attributing this to reduced profitability of these businesses. One of the reasons for the drop in taxes paid by these sectors was an increase in provisioning for non-performing loans in the banking sector that spiked as a result of high default rates.
“The other reason [for the reduced profitability] was forex losses arising from a depreciated exchange rate, especially in the first half of the financial year 2023/24,” said Mr Wattanga in a statement. “Weak demand for manufactured goods affected by high retail prices that were a result of the high cost of inputs (mainly import driven), high energy costs, etc,” he added.
Pay-as-you-earn, which is paid by salaried employees, increased by 9.7 percent to Sh543.2 billion. There was increased collection of VAT on domestic products which saw the taxman net Sh314.2 billion from this tax head, an improvement that was attributed to the implementation of the Electronic Tax Invoice Management System (eTIMS). The eTIMS, the KRA said, had minimised VAT fraud and increased tax revenue by onboarding 280,663 VAT-registered taxpayers.
Expanding the Tax Base
During this period, the KRA aggressively went after tax base expansion in which it aimed at onboarding taxpayers previously not paying taxes, through which it collected an additional Sh24.62 billion in revenue. Through this programme, the taxman sought to recruit landlords under the Monthly Rental Income (MRI) program through a taxpayer mapping process. Through the MRI programme, the KRA recruited 1,247,543 additional active taxpayers in the period under review.
Through a tax-at-source programme, KRA was able to integrate with other systems, allowing for an almost real-time collection of information and revenue directly at the source. The integration of Betting and Gaming Companies into the KRA tax system gave the taxman real-time access to companies in the gaming and betting sector, registering a growth rate of 26.2 percent after collecting Sh24.269 billion in the review period compared to Sh19.22 billion in the previous year.
The betting taxes are from Excise on Betting Services, Withholding tax on winnings from betting and gaming, and Betting tax. The betting taxes were from 111 taxpayers that have been on-boarded. “The performance is attributed to the integration of the betting companies into the KRA tax system, which has streamlined tax remittances,” Mr Wattanga said.
