26 November 2012

Kenya Tax Revenues Drop

The Kenyan taxman missed the revenue target for the first quarter of the 2012/13 financial year by $524 million prompting fears over the feasibility of the $11.7b expected for collection during the year.

Kenya has a serious budget deficit in light of the Kshs1.6 trillion budget proposal presented in the budget speech read by Finance Minister Njeru Githae in June this year.

The ambitious target has sent the government to tighten the noose around Kenyan taxpayers while going hard at evaders. The first to be netted are Kenyan landlords who will now be expected to pay monthly rates for their properties, a feat they have been circumventing in the past. Towards this end, the government is already mapping all the properties in the country to ensure that not a single one of them escapes the tax net.

During the three month period (June-September 2012), only $1.9 billion was collected against a quarterly target of $2.4 billion. This translates to a 21 per cent miss in the targeted revenue collection.

Economic analysts were quick to pint that the government risks borrowing heavily from the domestic market to meet its recurrent and development plans if the taxman continues missing the target. This scenario would herald another era of sharp rises in interest rates as demand for credit would be heightened in the domestic market.

"The government needs to device other revenue streams if this trend in missing targeted tax collections prevails. The worst case scenario is that the government would resort to heavily borrowing from the domestic market. This is dangerous as it would drive local interest rates beyond the ceiling," said Eddie Kahumbu of Millennium Investment Advisors.

The taxman attributed the poor result in tax collection to an underperforming VAT platform when only 76 per cent of the target was realized.

The Kenyan government also has the option of going for the expensive foreign credit to finance the deficit in budget, something the finance Minister had promised would be avoided to the letter.

Copyright © 2012 East African Business Week. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.