Kenya budget controller asks State to stop raising taxes

The Controller of Budget (COB) has urged the government to stop increasing taxes on employed Kenyans and instead focus on bringing more untaxed people to contribute to the State coffers.

In a report on budget implementation by the national government between July and September 2023, COB Margaret Nyakang’o notes that increasing taxes on employed Kenyans has reduced their purchasing power and cites it as among reasons for revenue shortfalls by the Kenya Revenue Authority (KRA).

“The shortfall in revenue collection results in delays in financing government programmes, affecting the delivery of services to the citizens based on promises by the government of the day. The Controller of Budget recommends that the government, through the KRA, enhances revenue mobilising strategies,” Dr Nyakang’o said in the report. 

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“These include creating more employment opportunities for the unemployed Kenyans and bringing more people into the tax bracket, unlike increasing taxes for the employed Kenyans, which erodes the purchasing power, resulting in counter-productivity.”

Receipts into the Consolidated Fund during the July-September 2023 quarter fell short of target, to realise 18 percent of the annual target of Ksh4.13 trillion, as compared to a performance of 19.2 percent of annual target between July and September last year.

“In the period under review, receipts into the Consolidated Fund were Ksh745.36 billion, representing 18 percent of the annual target compared to 19.2 percent recorded in a similar period FY 2022/23 (Ksh681.3 billion), recording growth in absolute terms,” the national government budget implementation review report stated. 

During the three-month period, the government was expected to raise a quarter of the targeted annual receipt of Ksh4.13 trillion, meaning that it had a shortfall of more than Ksh250 billion.

The revenue was to be used for funding development projects, recurrent activities and county governments as equitable shareable revenue.

Dr Nyakang’o also urged the National Treasury to realign the budget through supplementary budgeting early enough to match the revenue trends.

Her report comes at a time when KRA has also admitted to challenges in revenue collection due to factors including depreciation of the shilling and increasing commodity prices, which have driven down import demand.

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“While import values (in Kenya Shilling terms) grew by 36 percent and 11 percent in November 2023 and July – November 2023 respectively, in dollar terms, the growth for the month was subdued to 9 percent and a decline of 9.2 percent recorded cumulatively,” KRA said in its revenue performance report for November. 

KRA is targeting Ksh2.787 trillion in the year to June 2024 but collections have remained below target in the first five months of the financial year. 

The Authority says the economy has been hit by high interest rates that have reduced banks’ profitability, and a generally low purchasing power among consumers.

“The tight financial markets marked by increase in lending rates and interbank rates, has slowed down credit extension, especially to the private sector, resulting in a decline in Bank profitability by 4.9 percent as at September 2023,” it stated.