Why Treasury cut revenue collection targets by Sh28b
Lewis Njoka @LewisNjoka
Kenya Revenue Authority missed its ordinary revenue targets for the financial year 2019/2020 by Sh40.2 billion to net Sh1.58 trillion against a targeted Sh1.62 trillion, a 2.5 per cent deficit.
Interestingly, National Treasury made an unexplained downward revision on its ordinary revenue targets reducing it from Sh1.64 trillion announced in April to Sh1.62 trillion, in a Sh28 billion decrease.
Factoring in the Sh28 billion means Treasury missed its ordinary revenue targets by Sh68.2 billion and not the Sh40.2 billion as announced by the Exchequer.
“National Treasury reported financial year 2019/20 ordinary revenue at Sh1.58 trillion, Sh1.45 trillion in tax revenue and Sh121.7 billion in non-tax revenue, against a target of Sh1.62 trillion,” Churchill Ogutu, the Head of Research at Genghis Capital said in a statement.
Financing targets
“We think there were revisions on the revenue and financing targets in the month of June.
For instance, the amended medium-term fiscal framework (ended April 2020) shows ordinary revenue target at Sh1.64 trillion,” he added.
Ogutu said the downward recalibration by Treasury cannot be fully explained with the financial year 2019/20 Supplementary Budget III adjustments enacted at the tail end of the finavncial year as the supplementary budget resulted in a net increase of Sh17.8 billion.
He said this means that any ordinary revenue adjustments may have erred on the positive, not on the downside.
“Playing the devil’s advocate, it follows that any adjustments at all effected on the Appropriation-in-Aid (AiA) were biased to a net increase. However, we doubt this was the case,” Ogutu added.
Speaking to BusinessHub on phone yesterday, Treasury Principal Secretary Julius Muia said the ministry effected the downward adjustment on revenue targets to factor in the expected effects of Covid-19 going forward.
“We are factoring in the continued effects of Covid-19 going forward because we are not expecting the revenues to recover quickly.
Going forward we have budgeted for a standstill in terms of our revenue for 2020/21,” he added.
“That is actually what’s explaining our numbers where we are saying we don’t want to be bullish.
We want to be realistic because the challenges of dislocation of supply chain due to Covid-19 have suppressed incomes and employment.
We are factoring all that in to project no increase in revenues,” he added.
Muia attributed the deficit in revenue targets to the Covid-19 pandemic, saying the country was doing well up to about March but experienced a significant fall, up to 25 per cent of expectation, in April, May and June.
At 97.5 per cent, the financial year 2019/20 ordinary revenue collection performance was better than the historical average of 95.8 per cent.
However, the performance could have been ugly had the initial target of Sh1.88 trillion not been revised downwards.
Monthly tax collections for June exceeded expectations at Sh123.5 billion.
This was 37.4 per cent better than Sh89.9 billion collected in May but 18.3 per cent lower compared to Sh151.1 billion collected same month last year.
On aggregate, tax collection in the second quarter stood at Sh333.5 billion, 20.6 per cent lower than Sh419.9 billion collected in a similar period last year.
Revised downwards
Ogutu said he expects the 2020/21 revenue targets to be revised downwards considering the below average performance in 2019/20 financial year.
“Overall, we view that on account of the subpar financial year 2019/20 ordinary revenue collection, we expect downward revision on the financial year 2020/21 target (Sh1.621 trillion) to be pre-empted in the upcoming 2020 Budget Review Outlook Paper,” he added.
