Tax reform chorus mounts as KRA misses its revenue target

Kenya Revenue Authority (KRA) Commissioner-General John Njiraini at a past media briefing. The Kenya Revenue Authority (KRA) said it collected Sh842.5 billion in the nine months to March — amounting to 11.7 per cent growth over the same period last fiscal year. PHOTO | DIANA NGILA | NATION MEDIA GROUP

What you need to know:

  • To improve its performance, the KRA has recently undertaken diverse reforms, including the introduction of iTax that allows for convenient electronic filing of returns from the comfort of one’s home or office, avoiding strenuous physical paperwork.
  • As part of the new transparency drive for KRA and its employees, National Treasury Cabinet Secretary Henry Rotich said his ministry would install a hotline to implore “patriotic Kenyans” to blow the whistle on corruption-related issues linked to KRA staff.

Calls for meaningful tax reforms have mounted days after the taxman said taxes collected were below a nine-month target of Sh911.6 billion by a significant Sh69 billion.

The Kenya Revenue Authority (KRA) said it collected Sh842.5 billion in the nine months to March — amounting to 11.7 per cent growth over the same period last fiscal year.

KRA Commissioner-General John Njiraini attributed the missed targets to lower performance by the corporate sector, which he said had led to low income taxes. He added that lower imports during the period caused the related duties to under-perform by a significant margin.

On Friday, experts blamed the shortfall on “unrealistic” projections for tax revenues in the budget without putting in place the necessary reform measures.

They, however, said KRA must put its house in order, including reforming the corrupt tax collection machinery and overhauling the tax administration, if it is to meet its targets.

“KRA must wake up to truly become customer focused, respect taxpayers and move away from “police rungu” approach. It must work with counties and the National Land Commission to document all properties so that taxes from the same go up,” said economic analyst and CEO of Value Directors Ltd Kariithi Murage Murimi.

Mr Murimi said KRA must also engage Kenyans on their tax obligations.

“It must get all corrupt practices in Customs addressed head on with no sacred cow, improve VAT compliance by re-educating Kenyans to demand ETR receipts and link all PIN to licences to increase the tax base,” he said.

Rich Management CEO Aly Khan Satchu said that while KRA had actually posted a double digit increase in revenue collection year-to-date versus the previous year, it must explore new radical approaches — including possible tax cuts — to make Kenyans honour their tax obligations if it is to meet its targets.

“A radical approach which would increase collection would be to look at the tax rates and cut them, which would create a positive feedback loop and increase collections,” said the Nairobi-based analyst.

Mr Murimi also said KRA should not exempt any tax without Parliament’s approval.

“KRA must also ensure that all procurement from the national government is included in business income determination, and retrain all Cabinet Secretaries to champion tax collection by all related government transactions,” he added in an interview.

Analysts agree that missed revenue targets complicate the math for the State, as the Treasury struggles to balance the need for executing its money hungry fiscal programmes based on the prevailing tight conditions.

President Uhuru Kenyatta’s government, now in its third year since election, is seeking to run against time in fulfilling its recurrent expenditure obligations with an overstretched needs purse.

With 16 months to the election, Kenyan voters will give a score card for various promises made by the Jubilee administration.

But highlighting its dilemma on the promises made, which include flagship mega projects, President Kenyatta’s Cabinet last week froze new projects.

State House spokesman Manoah Esipisu said the State would, going forward, direct its resources to the remaining and ongoing projects with the aim of completing them before the country goes to the polls next year.

The past two years were marked by tough spells for the Treasury as economic shocks took a hit on the economy, impacting negatively on the taxman’s ability to collect much needed revenue.

Notably, the Treasury struggled to honour some of its crucial obligations in health and education sectors.

To improve its performance, the KRA has recently undertaken diverse reforms, including the introduction of iTax that allows for convenient electronic filing of returns from the comfort of one’s home or office, avoiding strenuous physical paperwork.

Further, the taxman established support networks for the iTax system across the various Huduma Centres countrywide to woo more taxpayers.

In October, Mr Njiraini said KRA was considering integrating more small and micro-entrepreneurs into the tax base by fast-tracking absorption during licensing by county governments.

The move, he said, would net business people when paying for registration or renewal of licences and help expand the tax base.

In October, President Kenyatta ordered a lifestyle audit of all KRA staff in a drastic bid to seal tax leakages linked to employees.

The directive targeted rogue employees whose actions were said to lead to loss of State revenue. These losses were largely blamed for the financial crunch that faced the government, prompting it to opt for heavy borrowing to honour its bills.

As part of the new transparency drive for KRA and its employees, National Treasury Cabinet Secretary Henry Rotich said his ministry would install a hotline to implore “patriotic Kenyans” to blow the whistle on corruption-related issues linked to KRA staff.

The unprecedented measures aimed at sealing tax loopholes would also see the Treasury review and possibly overhaul the administration of customs and VAT collection to widen the taxman’s net.

The Treasury would also monitor on a daily basis the revenue collection and clearance of cargo at the port of Mombasa, besides installing CCTV surveillance cameras to enhance vigilance.

Similarly, KRA would be compelled to improve its audit processes in transfer pricing, activities by construction companies and by large and wholesale companies, where the State has been losing huge amounts of money.

KRA has since appointed the authority’s first head of enforcement and border control within the Customs and Border Control Department to curb tax evasion at entry points.

The KRA targets to raise the number of active taxpayers to four million by 2017-2018 against the current estimated 1.6 million.