KRA Challenged to Raise $250m for Budget Deficit

The government is constrained to reduce the deficit substantially in line with reforms agreed with the IMF that limit the extent of borrowing from the domestic markets

By PETER MUNAITA
THE EASTAFRICAN

THE KENYA Revenue Authority (KRA) has been tasked with raising an additional Ksh20 billion ($250 million) in taxes to help the government bridge a worsening income shortfall occasioned by delays in disbursement of budget support from donors.

The government is constrained to reduce the Ksh32 billion ($400 million) deficit substantially, in line with reforms agreed with the International Monetary Fund (IMF) that limit the extent of borrowing from the domestic financial markets to Ksh10 billion ($125 million).

The task of covering the deficit has fallen on the KRA, which initially had a target of Ksh240 billion ($3 billion). But Commissioner General Mr Michael Waweru is upbeat that the tax body will meet the new challenge to raise Ksh260 billion ($3.25 billion).

"We are certain that we will surpass our current revenue target for the financial year, which stands at Ksh240 billion ($3 billion)," Mr Waweru said during the Large Tax Payers Awards Ceremony, presided over by Finance Minister David Mwiraria on behalf of President Mwai Kibaki. Officials from revenue authorities in Uganda, Tanzania, Zambia and Rwanda attended the function.

Although the new level is said to have been dictated to Treasury, KRA officials insisted last week that the revised target was arrived at internally. "We have raised our goal for the financial year to Ksh260 billion ($3.25 billion) but the target remains Ksh240 billion ($3 billion)," KRA's Commissioner of Customs and Excise Francis Thuranira said during a programme to mark the inaugural taxpayers' Week.

The awards saw Kenya Breweries emerge as the overall distinguished taxpayer ahead of Kobil Oil Kenya and Safaricom in that order for the financial year ended June 30, 2004. Safaricom was the leading payer of corporate tax; Mumias Sugar Company of value added tax and DT Dobie of Customs and excise. The 200,000 strong Teacher Service Commission came tops in Pay-As-You-Earn (Paye) remittances. 

It is not clear how KRA will raise the extra Ksh20 billion ($250 million) but much hope is pinned on the success of a six-month tax amnesty that targets Ksh5 billion ($62.5 million) from an estimated 500,000 tax defaulters and which will expire in December. With word out that the amnesty is meant to bring habitual evaders into the tax net, the response so far has been lukewarm, with 700 cases processed and Ks400 million ($5 million) collected.

Mr Waweru argues that the collections will pick up as taxpayers rush to beat the amnesty's deadline of December 31. President Kibaki was more stern in his speech read by Mr Mwiraria. "Declaration of amnesty is the last chance to those who want to come clean with regard to tax payments. The reforms that we are taking in KRA will identify and bring to the tax net those who want to continue with their bad ways. They will face the full force of the tax law," President Kibaki warned. 

Under the amnesty announced by Mr Mwiraria in June, taxpayers who voluntarily declare previously unassessed tax dues will be spared interests and penalty charges which, Mr Waweru said recently, can be waived by up to 90 per cent after negotiations. KRA estimates that it is owed Ksh90 billion ($1.13 billion), most of it in penalties and interest by taxpayers.

KRA's more successful tax net expansion measures, like the reforms in the transport sector earlier in the year netted 34,000 new taxpayers, with a revenue yield of Ksh5.3 billion ($66.3 million). However, future collection will be hinged on the expansion of the Withholding VAT Agency system, which in its 15 months of operation, has brought in about 20,000 new tax payers with a revenue potential of about Ksh25 billion ($312.5 million).

"We are pursuing the integration of domestic tax services, which will make it harder to evade any particular form of tax," Mr Andrew Okello, a Senior Deputy Commissioner in charge of research and corporate planning told The EastAfrican. He said KRA was in discussions with the Ministry of Lands to collect land related charges like stamp duty on the latter's behalf, which would help the authority bring property owners and landlords into the tax net once a reliable data bank is established.

KRA has recorded a 10 per cent annual growth in revenue from Ksh122 billion on establishment in 1995 to Ksh229 billion during the last financial year when it had a target of Ksh220 billion. Mr Okello said that returns from the first quarter (July to Spetember) during which it collected Ksh64.6 billion indicate that KRA was on course to realise the Ksh260 billion mark. 

The collection was Ksh8.8billion above target and well above the Ksh 51.3 billion collected in the first quarter of last year. If the trend is maintained KRA would collect about Ksh258 billion by June next year. However there is a looming threat of smuggling and dumping of transit goods in the local market following increased cross border trade anticipated following the installation of a new government in Somalia, the advanced peace process in the Sudan and emerging stability in Congo and Burundi. 

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