Auditor-General Nancy Gathungu before a parliamentary committee on September 4, 2024.
Auditor-General Nancy Gathungu has warned that the Sh4.3 trillion budget for the 2025/2026 financial year as projected in the 2025 Budget Policy Statement (BPS) will expose the government to a borrowing spree as it is not aligned with the anticipated revenue streams.
In a document tabled in Parliament, Ms Gathungu warned that the State's proposed expenditure plans lacked credibility given that the Kenya Revenue Authority (KRA) had missed its collection targets.
The 2025 BPS projects ordinary revenue at Sh2.8 trillion, about 14.7 percent of the Gross Domestic Product (GDP) for the 2025/26 financial year up from Sh2.6 trillion, which is 14.8 percent of GDP for the 2024/2025 period.
“This falls short of the World Bank’s recommended minimum tax-to-GDP ratio of 15 percent. This trend raises some concern on the accuracy of revenue projections in the budget,” says Ms Gathungu.
The projected Sh4.3 trillion budget for the 2025/2026 financial year is an increase from the Sh3.978 trillion budget under execution for the current financial year 2024/2025.
“I have raised the challenge of tax revenue collection in my audit reports. If the trend continues, it will be difficult to meet the expenditure projections for the 2025/26 financial year without resulting in borrowings,” says Ms Gathungu.
To address the issue and assure the country of a credible budget, now and in the future, Ms Gathungu recommends that the National Treasury adopts “a more cautious approach to revenue forecasting” while taking into account historical trends and potential risks to economic growth.
This, the Auditor-General says, will help avoid overestimating revenue and ensure that expenditure commitments are aligned with realistic resource projections.
“The government should also strengthen tax administration efforts to improve compliance and expand the tax base,” says Ms Gathungu. “This includes modernising tax collection systems, enhancing taxpayer services, and addressing tax evasion and avoidance.”
The Auditor-General’s document shows that for the last five financial years, save for one, KRA has not been able to meet its ordinary revenue projections.
For instance, in the 2023/2024 financial year, the government projected to collect Sh2.5 trillion but the taxman collected Sh2.3 trillion, leaving a shortfall of Sh170.4 billion, about a 6.9 percent reduction.
In the 2022/2023 period, the projected revenue was Sh2.2 trillion but Sh2.1 trillion was collected, about a Sh99.35 billion shortfall.
It is only in the 2021/22 financial year that the actual revenue collections surpassed the projected revenue by Sh101.5 billion.
During the period, the government had projected that KRA would collect Sh1.89 trillion but it collected Sh1.94 trillion, about a 5.5 percent increase of the projected base.
In the 2020/2021 period, KRA missed the target by Sh581.6 million against the projected Sh1.6 trillion, about 0.04 percent while in the 2019/20 financial year, Sh50.9 billion was the missed target against the projected Sh1.67 trillion.
“The annual revenue shortfalls and high tax arrears indicate a potential fiscal challenge as revenue generation will most likely not meet the initial expectations or budget projections,” said Ms Gathungu adding that these “are also indicators of inadequate revenue planning and forecasting.”
The 2022 Kenya Public Expenditure and Financial Accountability Assessment (PEFA) report, indicated that Kenya’s fiscal discipline is weakened by the unreliability of “aggregate revenue outturn caused by overoptimistic targets”.
