Covid hit on economy headache for KRA into 2021 - Beaking Kenya News

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Friday, 1 January 2021

Covid hit on economy headache for KRA into 2021

 

The year 2020 will go down the taxman's books as one of the worse in history as the Covid-19 pandemic continues to ravage the economy into 2021.

With the first half of the 2020/21 financial year having ended yesterday, December 31, Kenya Revenue Authority continues to face revenue shortfalls into the new year.

It has recorded low collections since March when Covid-19 hit the country, leading to a tough business environment and reduced economic activities across different sectors.

In eight months to November, KRA missed its target by about Sh186.3 billion as Commissioner-General Githii Mburu last month announced the taxman collected Sh1.09 trillion. This is against a target of Sh1.28 trillion for the period.

The gap was further curtailed by the government tax relief which came into effect in April, among them the reduction of VAT to 14 per cent , Income Tax Rate (Pay-As-You-Earn) reduction to 25 per cent and Resident Income Tax (Corporation Tax) at 25 per cent.

Under the Tax Law (Amendment) Act, 2020, the government also gave a tax waiver to persons earning up to Sh24,000 while it reduced Turnover Tax rate for SMEs from three per cent to one per cent.

This saw the taxman forego Sh65 billion in taxes which according to KRA, the monies went to the citizen's pocket.

“The amount represents revenue forgone by the government, which consequently reduced tax revenue collection,” Mburu said.

During the recent 48th East African Revenue Authorities Commissioner General's meeting,it was established that within the greater East African region, it is only Kenya that took the decision to cushion citizens from the effects of the pandemic by cutting tax rates.

Reduced import activities on a drop in the global supply chain also saw KRA miss out on potential customs revenue, which in 2019 gave the taxman Sh510.63 billion of the total Sh1.092 trillion collected in the 2019/20 financial year.

The massive job losses as companies moved to cut operating costs in the wake of the pandemic has also reduced projected PAYE taxes.

The closure of airports between March and August, when international flights resumed, was also a headache for the authority mainly on reduced spending by passenger travelers.

The closure of bars and controlled operating hours for restaurants in the better part of the year further dented the taxman's excise tax collections, mainly built on alcoholic drinks.

However, KRA remains optimistic about the second half of the financial year which begins today, as the economy slowly regains its ground.

According to Mburu, the easing of restrictions(inter-county movement in July and international travel in August) opened up borders for international trade which consequently enabled the authority surpass the October target of its customs revenue.

Following the relaxation of curfew, consumption taxes like excise tax has increased.

“From a revenue mobilisation perspective, the positive performance of customs revenue and excise tax is a clear indicator that the economy is slowly rebounding,” Mburu said in an advert on December 7.

Compliance by manufacturers on the second phase of the Excisable Goods Management System(EGMS) has also come as a boost for efforts to curb tax evasion and increase revenue collection.

Phase II of the EGMS, which came into place last November covers bottled water, juices, and non-alcoholic drinks.

According to the Kenya Association of Manufacturers, “all producers have complied with having EGMS equipment installed.”

This means the taxman is likely to boost revenue collections by a targeted Sh4 billion, as the country anticipates for better days ahead, where the government is expected to relax the nationwide curfew, increasing operating hours for businesses.

Successful implementation of the EGMS system on alcoholic drinks and cigarettes in 2013 helped increase excise tax on these products from Sh700 million to above Sh5.6 billion.

Swiss Company–SICPA is the service provider in the technology that ensures secure traceability of products subject to excise duties.

It has been instrumental in helping KRA implement the system, which remains critical in weeding out illicit trade and the fight against counterfeits, which is denying the government the much-needed revenues.

The company which also provides security inks for currencies and sensitive documents, including identity documents, passports, transport and lottery tickets has been working on improving the excise stamps, a great deal for the taxman in weeding out fakes.

“So far, the system has borne positive outcome and for the first three months of implementation, revenue grew by an average 11 per cent,” KRA Deputy Commissioner Policy and Tax Advisory, Domestic Taxes Department,Caxton Masudi, told the Star in an interview.

Meanwhile, KRA is counting on the revision of the Covid-19 tax relief, which came  to an end yesterday, to boost its collections.

Starting today, January 1, VAT is expected to go back to 16 per cent, resident corporate tax paid by big businesses reverts to 30 per cent from 25 per cent while PAYE goes back to the same level.

“However, the government will continue to cushion the low-income earners, by retaining 100 per cent tax exemption/relief for those earning monthly incomes of Sh24,000 and below,” Yatani said on December 4.

Treasury had in June last year, during the current financial year budget presentation, given KRA a target of Sh1.63 trillion ( ordinary revenues) for the financial year 2020/21, to help support government spending in the Sh2.79 trillion planned budget for the year ending June 30.

Low revenues have traditionally pushed the country into more borrowing, with public debt at Sh7.12 trillion, to bridge the budget deficit.

In the current financial year, Treasury had planned to borrow Sh840.6 billion (Sh494 billion domestic and Sh347 billion external debt), which has however been pushed up by the Covid-19 pandemic.

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