KRA misses target by Sh45 billion

The Kenya Revenue Authority missed its tax revenue collection target by Sh45 billion in the first quarter of this financial year, even as the government raised the annual target to Sh1 trillion.

The quarterly economic and budgetary review from the Ministry of Finance Kenya, Revenue Authority (KRA) says that only Sh165.7 billion was collected, 21 per cent below a target of Sh211 billion in first quarter (June-September 2012).

“Unless the government finds new sources of external financing, continued underperformance in revenue collections will continue to force them to borrow more locally, putting pressure on the rates market,” analysts at Citi said in a report on Wednesday.

The missed target resulted largely from underperformance in value added tax (VAT), where revenue collected were 24 per cent lower than expected.

The government had projected to collect Sh54.6 billion in VAT, but only managed to raise Sh41.5 billion.

Analysts say that with the risks that may arise, given the pressure from domestic borrowing, there is a possibility the government will look to external funding through a consortium of international banks.

“They could do the same this year or even bring forward their $1 billion (Sh85 billion) Eurobond issuance plans, currently slated for the 2013/14 fiscal year. This will potentially prevent any significant pressure on local rates,” the analysts said.

The revenue collection performance further led to a rise in the overall cumulative fiscal shortfall to Sh71.6 billion, from a target of Sh58.7 billion.

Much of this deficit was funded domestically through issuance of government securities amidst a slowdown in external sources of financing.

This has, however, seen the government’s total debt stand at Sh1.78 trillion by June this year.

Last week, Treasury shelved plans to reintroduce the new VAT Bill until after the elections to be held on March 4.

The VAT Bill 2012 would have slapped a 16 per cent levy on fertilizer, maize flour, bread, wheat flour, milk and books to increase revenues for rising expenditure needs, a move that could have pushed up the prices of such commodities.

The government has, however, proposed to increase excise tax on beer by 10 per cent to 50 per cent, slap a 10 per cent tax on mobile money transfer services and a further 20 per cent from sale of property or shares in the oil and mining sectors.