Revenue collection dips by Sh128b over unpaid taxes

Kenya Revenue Authority (KRA) started the fourth and last quarter of the current financial year with a Sh128 billion collection deficit covering 10 months to April 2023, reflecting a 6.7 per cent off target largely linked to unremitted Pay-As-You-Earn (PAYE).

Delayed exchequer funding to County governments and Ministries, Departments, and Agencies (MDAs) led to a fallback in the channelling of PAYE deductions to the taxman even as their wage bills balloon and are likely to roll over to the next financial year starting July.

Revenue collection data revealed by KRA before the National Assembly’s Departmental Committee on Finance and National planning indicates that by the end of April, the collection was Sh1.78 trillion against a monthly target of Sh1.908 trillion.

The new Sh128 billion deficit signals a persistent monthly collection underperformance and the impact of the government’s ongoing liquidity crunch that has rolled back to haunt the Authority.

Alex Mwangi, KRA Deputy Commissioner Research told the Kuria Kimani-led committee that PAYE debt from public institutions currently stands at Sh89 billion because of the underfunding.

Expenditure side

“The issue is not more on the revenue collection side. It is actually on the expenditure side. So, it is how the National Treasury release money to the counties that will help us clear the deficit. If they will be well funded, it will reduce this deficit by more than half,” he Mwangi told the finance committee.

In the recently released Quarterly Economic and Budgetary Review, the Treasury indicated that revenue collection by March 2023 was below target by Sh87.4 billion, meaning between March and April, the deficit widened by an extra Sh40.6 billion. Exchequer cash flow hitches, which led to salary delays between January and March, saw the counties threaten to down their tools.

PAYE, which is the biggest tax head for the Authority, grew by 5.9 per cent in April compared to March when it hiked by 13 per cent as the national treasury clears in batches the arrears owed to MDAs and devolved units.

If compared on a yearly basis, the Sh1.78 trillion collection reflects growth. However, should the underperformance trend continue, KRA is set to miss the full-year target of Sh2.2 trillion for the period ending June by about Sh100 billion, according to Mwangi.

The Kimani-led committee, however, opines that considering that this was an electioneering period which is always marred by slow cash flows, KRA’s performance is commendable and the new higher targets set for the next financial year are achievable.

To achieve the target, KRA was to collect a monthly average of Sh175 billion. But with the April deficit factored in, the taxman is supposed to collect Sh420 billion in May and June to reach the target.