KRA RESPONDS TO RUTO’S PLAN. UNVEILS NEW TAX SYSTEM.

The deliverables in-tray for the new administration is filling up too fast, it is difficult to keep tabs with the pledges. Last week, the President announced that his administration expects to collect Sh3 trillion in taxes by next year and double that in the next five years.

That target is close to impossible for the taxman to meet. Let us begin by looking at what Sh3 trillion means for the Kenya Revenue Authority (KRA). In the financial year 2021/2022 that ended in June this year, the KRA collected a new high of Sh2 trillion, so collecting Sh3 trillion means a 50 percent increase in collection within a year.

The other way to look at the Sh.3 trillion target is through the tax-to-GDP indicator. This indicator is important because it helps analyse whether tax collection is growing in tandem with economic performance. For Kenya, this indicator has been dropping for a number of year . It was at 18 percent in 2016 but stands at 14 percent today despite Kenya enjoying good economic growth.

This, therefore, means that economic growth has not been sustainable. The economy has been growing but productivity has been dropping. The economic growth has not been from economic activities with high productivity or income that translates into increased taxes.

The recommended average tax-to-GDP for a developing economy like Kenya is around 18-20 percent. To put the Sh3 trillion revenue collection into perspective, that is close to 25 percent of tax-to-GDP, which is unattainable. For the Sh3 trillion to make economic sense, that means having it at 20 percent tax-to-GDP, the economy must grow from Sh12 trillion to Sh15 trillion. That is a 25 percent economic growth within one year, which is unrealistic.

In fact, Kenya’s economic growth in the next year doesn’t look impressive. This is an economy spending close to 60 percent of revenues to service debt at the expense of socioeconomic development. Currently, we are experiencing devastating drought and expect low agricultural productivity because of failed rainfall. To wrap it all up, we are in a period of rising inflation hindering economic growth.

So, how does the new administration expect the taxman to achieve the Sh3 trillion target?

The President mentioned an anecdote about serious tax evasion that we should all be concerned about. Kenya sells 2.9 billion stamps only for excisable products whilst Tanzania is selling 7.2 billion and Uganda nine billion.

If these numbers are accurate, how can Kenya which is the manufacturing and industrial powerhouse of the region, be selling around a third of what its neighbours are selling?

This is a scandal of monumental proportions, and the taxman has a lot to answer. For tax officials to aid and abet tax evasion of such magnitude, have we lost the tax body again to rogue elements like in the Moi days?

Sourced from business daily