The Kenya Revenue Authority (KRA) reported a revenue deficit of Ksh 79 billion in the first quarter of the current financial year.
KRA Commissioner-General Humphrey Wattanga cited several contributing factors for this shortfall in a briefing to the National Assembly’s Finance Committee.
One of the primary reasons for the revenue target miss was attributed to sluggish economic growth.
Additionally, low tax collections from oil imports, exemptions on food-related items, and failure by certain government entities to remit pay-as-you-earn (PAYE) were identified as contributing factors.
Specifically, the oil revenue category experienced a deficit of Ksh 12.9 billion, marking an 8.6% decline in collections between July and September 2022.
The reduced performance in this category was linked to a 12.4% drop in overall oil volumes, primarily due to diminished fuel consumption in the first half of 2023, driven by high fuel prices that suppressed demand.
Government tax waivers and exemptions totaling Ksh 39 billion, along with a Ksh 20 billion reduction in non-oil revenue imports, further exacerbated the revenue shortfall. The total revenue collected in the period amounted to Ksh 588.9 billion, falling short of the Ksh 665.9 billion target.
This resulted in a revenue performance rate of 88.1% against the target, equating to a deficit of Ksh 79 billion and growth of 8.4%. In the category of domestic taxes, collections amounted to Ksh 389.5 billion against a target of Ksh 431.2 billion, representing a 90.3% performance with a deficit of Ksh 41.7 billion and growth of 14.9%.
Customs and Border Control recorded a total collection of Ksh 196.1 billion against a target of Ksh 233.4 billion, reflecting an 84% performance with a revenue deficit of Ksh 37.3 billion and a decline of 2.7%.
Although KRA reported positive revenue growth compared to the same period in the previous financial year, the authority experienced a slowed growth rate of 8.4%.
This deceleration was attributed to underperformance in non-oil and oil taxes, corporation tax, PAYE, and domestic value-added tax.
KRA Commissioner-General Wattanga explained that several economic parameters had deviated from expectations.
“The dip in ministerial expenditure on development projects by more than half in the first quarter of 2023/24 (Sh31.64 billion down from 68 billion over the same period the previous year) has slowed activity on projects such as roads, water, power plants, housing, and electricity transmission lines, he said.
Wattanga highlighted that withholding income tax experienced an overcollection of Ksh 34.4 billion, driven by increased remittances from both the public and private sectors.
Domestic VAT collections saw a robust growth of 21.6% to reach Ksh 63.5 billion. However, corporation tax collections fell short of the target, standing at Ksh 69.5 billion against a target of Ksh 89.2 billion.
The decline in the Information Communication Technology (ICT) sector and weak performance from banks impacted instalment remittances. Despite these challenges, PAYE realized a collection of Ksh 126.5 billion, with strong contributions from private firms, which registered an 18.1% growth.
