Covid-19 takes out Ksh.54 billion from KRAs tax basket

The ensuing Covid-19 pandemic has seen the tax basket shrink by Ksh.54 billion or an equivalent 16.1 percent between March and May this year.

According to an analysis of the National Treasury statements on actual revenues and net exchequer issues, total tax income in three months to the end of may stood at Ksh.334.6 billion in comparison to Ksh.388.5 billion over a similar period last year.

Cumulative tax collection in 11 months since July 1 was however positive having stood at Ksh.1.33 trillion from Ksh.1.29 trillion last year.

The slash on tax collection is largely attributable to widespread economic disruption and fresh tax cuts in the period, a combination which is set to deny the tax man his annual collection target.

The severance of economic value chains has for instance seen the Kenya Revenue Authority (KRA) major tax heads take a significant hit including lower imports, firm closures and employee layoffs cutting off part of customs and import duty, corporation tax and pay as you earn (PAYE) sources.

Tax collections across May have seen the sharpest decline from last year falling to Ksh.89.9 billion from Ksh.128.4 billion last year.

Further to the economic turmoil, recent tax ammendments contained in the 2020 Tax Laws (Ammendment) Act has taken a swipe at collection as the government sort to cushion Kenyans from the severity of the pandemic.

The Act for instance waived PAYE for all earners will gross salaries not exceeding Ksh.24,000 while lowering the overall PAYE rate by five percent.

Further, the resident income tax/corporation tax was lowered to 25 percent from 30 percent while the rate of turnover tax (ToT) charged to SMEs was trimmed to one percent from three percent.

Treasury’s push to remove part of tax exemptions to common user items including cooking gas and pensioners benefits was thwarted and further gloomed revenue collection estimates for the year.

The exchequer expects total tax revenue collections for the year ending June 30 to remain stagnant at Ksh.1.49 trillion for the 2019/20 fiscal year from Ksh.1.499 trillion last year.

The revised ceiling is still ambitious as it assumes June collections will hit Ksh.310 billion, an unrealistic position in the hostile environment.

The National Treasury had initially set its tax revenue targets at Ksh.1.877 trillion in June last year.