Tax collections dropped Sh57.43 billion in five months to May compared with the same period last year on the back of depressed sales by businesses, reduced earnings by workers and tax reliefs.
Data published by Treasury secretary Ukur Yatani shows tax receipts for January-May 2020 amounted to Sh550.64 billion, a decline of 9.44 percent compared with Sh608.07 billion in the corresponding period a year ago.
The contraction in the Kenya Revenue Authority (KRA) collections mirrors reduced earnings by businesses struggling with lower sales since January. Workers have also been hammered hard by stagnant pay in an environment as companies shed jobs to contain costs.
The situation worsened from March due to the coronavirus pandemic containment measures by Health ministry, resulting in the closure of some businesses and reduced operating hours for others.
The Treasury also implemented tax reliefs from April to cushion businesses and workers from the economic shocks of Covid-19 pandemic, further thinning collections by the KRA.
The exchequer statistics show collections by the taxman in May amounted to Sh89.87 billion, a drop of 30 percent, or Sh38.52 billion, compared to Sh128.29 billion in the same month a year ago.
The receipts in May were the lowest since the Treasury started making public the monthly revenue and expenditure data. The sharp drop largely reflects the impact of the tax reliefs amid lower earnings for businesses and families.
Kenya's private sector activity contracted between January and May, according to Markit Stanbic Bank Kenya Purchasing Managers' Index (PMI) -- a survey which tracks monthly business performance largely in services and manufacturing sectors.
"Business conditions have contracted for five consecutive months now. In fact, the employment sub-index fell by the sharpest level in May since data collection began (February 2014).
"Consequently, the decline in the workforce has reduced overall input prices for private sector firms," said Jibran Qureishi, immediate former Stanbic Bank's regional economist for global markets and now the bank's chief research economist for Africa, in the PMI statement early June.
This has hit hardest payroll and corporate taxes, which account for more than half of government revenues, while excise and import duty has also been hammered by the low purchasing power.
Among the reliefs, the State offered were excluding workers earning less than Sh24,000 from paying taxes and lowering the maximum employment and corporation tax for resident companies to 25 percent from 30 percent.
The Treasury has also cut value-added tax to 14 percent from 16 percent from April 1.