Covid-19: KRA faces sharp drop in revenue collection

Wednesday, April 8th, 2020 00:00 |
Kenya Revenue Authority Commissioner-General James Mburu speaks at a past event. He has in the past stated that anybody who willingly and intentionally fails to comply with the law as far as tax collection is concerned will be treated as a criminal. Photo/PD/File

Seth Onyango @SethManex

Kenya Revenue Authority (KRA) is projected to record a sharper decline in revenue collections on the back of Covid-19 pandemic which has disrupted businesses and the labour market.

Already, the taxman has missed its mid-annual tax collection bulls eye by Sh88.3 billion, after netting Sh779.3 billion in the first half of the 2019-2020 financial year.

KRA had projected to raise Sh1.8 trillion by June 2020 as compared to the Sh1.58 trillion collected in Financial Year 2018/2019.

But that appears to be a pipe dream as the crippling coronavirus pandemic cut tax avenue sources, amid cash flow problems, looming job cuts and lower corporate earnings.

If the Covid-19 damage to the economy will be as substantial as economists expect, government will face significant fiscal challenges and will have no choice but to revise its revenue forecasts and adjust the fiscal 2020/21 budget accordingly.

Francis Kamau, a partner at Ernst & Young, warned that there is going to be massive layoff in Kenya in the coming weeks and months which will affect income tax as well as value added tax (VAT).

“There is going to be massive redundancies, so many people are going to lose their jobs and that is going to affect revenue in terms of Pay-as-you-earn (PAYE) in a big way.

Also because of job losses, people will not have disposable income which affects the value added tax,” he said.

Already, National Treasury has reduced VAT from 16 to 14 per cent to cushion Kenyans against coronavirus shocks.

Kamau also projected the government to record massive revenue losses in terms of corporation tax since companies are not operating at the their optimum.

Revenue source

“Another thing revenue source is customs. There are very few people importing yet customs is a massive revenue earner for KRA,” he said.

Another revenue source that the taxman is expected to lose is transactional revenue which include capital gains tax.

“You can see people are not buying and selling land…people are hoarding money and companies are not restructuring, and you know the government earns a lot of money in terms of stamp duty. All this will leave a very big dent on State revenues,” Kamau said.

Consumer Insight notes in its April report that stockpiling is becoming normal, with research findings indicating that stockpiling in the face of the virus is likely to grow further in coming weeks.

“Number of Kenyans planning to stockpile is highest among African countries at 68 per cent, compared to Nigerians at 58 per cent and South Africans at 31 per cent, though 27 per cent of Kenyans interviewed say the food they currently have in stock is unlikely to last them beyond a few days,” reads the report in part.

This even as top tax paying firm such as East Africa Breweries Ltd (EABL), banks and petroleum companies that forked out billions to the exchequer are now recording even lesser earnings on the back of the pandemic.

EABL and other liquor making firms are some of the biggest casualties of the dusk to dawn curfew imposed by the government with the closure of bars and clubs expected to eat into their profits.

Last year, the beer maker contributed Sh6.3 billion in taxes to the exchequer.

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