Total tax collections in the financial year ended last month increased by Sh100.1 billion to Sh1.44 trillion, but fell short of the Treasury-set target by Sh72.7 billion.
A new Kenya Revenue Authority (KRA) report shows the tax agency recorded a 7.47 percent growth over Sh1.34 trillion collected in the year ended June 2018.
The amount does not include fees and levies KRA collected on behalf of other State agencies.
The tax receipts, however, missed the fresh goal of Sh1.5 trillion set by suspended Treasury secretary Henry Rotich last month, from the previous Sh1.61 trillion set last December.
The Budget Policy Statement 2018 originally set a tax goal of Sh1.69 trillion, but the Treasury has been revising the target to align with economic growth projections, parliamentary amendments and court rulings that affect tax collections.
Shortfalls in revenue collection targets widen the country’s budget deficit, which is bridged through increased borrowing to meet the government’s recurrent and development spending on infrastructure projects such as roads, bridges, power plants and transmission lines.
The Treasury had in May revised upwards the target for expensive commercial loans, largely syndicated loans from commercial banks and Eurobond, by Sh74.65 billion from the Sh287.95 billion previously budgeted.
The growth in commercial loans to Sh362.6 billion in the fiscal year under review was largely on the weight of $2.1 billion (Sh217.98 billion) third Eurobond that the Treasury successfully issued on May 15 in two tranches of seven and 12 years.
New York-based credit rating agency, Fitch Ratings, had in a note on May 7 warned that weak growth in revenue, largely tax receipts, presented the biggest challenge to Kenya’s effort to balance its budget.
“A combination of structural and administrative issues has caused revenue/GDP (gross domestic product) to stagnate in recent years.
Some of this is the result of agriculture being a large component of the economy and most of the non-export agricultural output coming from un-taxed smallholders,” Fitch analysts wrote in the report.
“In addition, weak tax compliance and the expansion of tax exemptions have muted domestic revenue growth.”
The shortfall in tax target for the just ended year means the immediate former KRA commissioner-general John Njiraini, who left office at the end of June, missed the targets by a cumulative Sh261 billion in his last four years in office.
He missed targets by Sh95.2 billion in the year ended June 2018, Sh64.5 billion a year earlier and Sh28.6 billion in the 2015-16 fiscal year.
The under-performance was foreseen by Mr Njiraini who, in January, had projected a shortfall for the year ending June 2019, citing a slowdown in income tax receipts on the back of reduced corporate earnings that hit creation of new jobs.
“The prolonged (2017) elections significantly affected businesses. We are largely getting out of it, but we are not out of it,” he said in an interview on January 16.
“We still have businesses complaining and expressing concerns regarding the (the slow) pick-up of economic activities and sluggish demand, and, therefore, affecting bottom-line in terms of profitability.”
Businesses have since last year complained about the accumulating pending bills amid reduced access to credit for compounding cash flow challenges, thus hurting new investments, profitability and jobs.