Kenya’s government is settling debts with service providers including companies helping double the paved-road network, which is good news for the tax agency in East Africa’s largest economy as it seeks to recover from a record shortfall.
“There have been concerns about government paying bills on time and therefore companies themselves meeting obligations, including tax obligations,” John Njiraini, commissioner general of the Kenya Revenue Authority, said in a Feb. 25 interview in the capital, Nairobi.
The agency missed its fiscal first-half collection target of about 618.6 billion shillings ($6.1 billion) by 59 billion shillings, as the economy slowed, the local currency weakened and high interest rates constrained businesses, reducing tax payments. That’s the biggest miss of the first-half goal, according to Bloomberg calculations. Companies wound back expansion plans and cut staff to limit losses, weakening tax revenue from individual salary earners.
Some government employees went without pay for as long as three months in the second half of 2015 as the state scrambled for funds to pay for imports and the cost of infrastructure investment such as a one-million acre (405,000-hectare) irrigation project and the road expansion plans. The state paid interest rates as high as 22.5 percent on treasury bills as it raised money to meet its commitments.
The agency expects income tax collection to recover in the second half as the economy benefits from a more stable shilling and the state meets its obligations to creditors, Njiraini said. The disbursements by the government are allowing suppliers to pay off their debts, reducing bad-debt levels and increasing liquidity in the system, he said.
“Government put a lot of effort in the second quarter to normalize its expenditure program and this has a knock-on positive effect, resulting in more collections of withholding tax and a rebound in pay-as-you-earn in January and February,” Njiraini said. Income and corporate taxes account for half the agency’s revenue.
Increased value-added tax collections are also bolstering the agency’s coffers, Njiraini said. VAT income more than doubled in the six months ended December, while excise tax collections rose 16 percent.
“VAT had a 6 billion shilling surplus by the end of January and we are working towards having a surplus of 12 billion shillings by the end of June,” he said.
A new excise law enacted in December should improve the authority’s ability to collect taxes on goods, he said. The authority is also scaling up the use of technology to track production of excisable goods at factories, extending this from cigarettes, alcoholic spirits and beer to soft drinks, water and juices.
The government has set KRA a revenue collection target of 1.5 trillion shillings, or 75 percent of the 2016-17 budget. This is a 14 percent increase from the 1.3 trillion shillings it’s expecting in the current fiscal year.
KRA plans to enlist the country’s banking network and Safaricom, the nation’s biggest mobile-money company, to rope in more tax payers. The telecommunications provider had 91,246 mobile-money agents across the nation by September 2015, which would effectively extend the taxman’s reach past the 35 outlets the agency has in the country.
“The conventional platform where people have to walk into a bank to pay taxes is not helping,” Njiraini said. “People are saying, ‘we want to pay money, but why do we have to come looking for you in your ivory tower?