KRA crafts plan to collect Sh6.8trn tax

The tax base expansion drive, KRA says, will involve recruiting new taxpayers and introducing new taxes in a move that will burden taxpayers with additional obligations over the next three years.

KRA estimates that informal sector workers have hit 15.1 million, 83 per cent of Kenya’s workforce, compared with just 3.1 million formal employees, who pay income tax on their monthly earnings.

New taxpayers

The drive is expected to add two million new taxpayers into the taxation bracket and push the number of active taxpayers to 8.2 million from 6.1 million.

The agency especially wants to squeeze more taxes from real estate investors, agriculture, high-net-worth individuals, registered companies and taxpayers under the turnover tax regime to increase their contribution to the revenue basket. 

KRA is aiming to revamp its image by rebranding to Kenya Revenue Service (KRS) and seeks to raid the growing digital economy. It has set up a new Technology, Innovation and Artificial Intelligence division to drive its strategy for taxing digital entities.

Meanwhile, the taxman plans to nearly double its 7,955 staff over the period to 14,555 to address its capacity issues that have inhibited implementation of tax collection measures. 

KRA projects these interventions will aid the collection of Sh1.9 trillion in the current financial year, Sh2.2 trillion in FY 2022/23 and Sh2.6 trillion in FY 2023/24.

Import duty

These will be supported by a projected growth of import duty from Sh107 billion this year to Sh170 billion in 2024, excise duty from Sh220 billion to Sh346 billion and Value Added Tax (VAT) from Sh405 billion to Sh691 billion.

The agency also expects a marked growth in collections from employees through income tax to Sh1.1 trillion from Sh692 billion; Sh33 billion through the Railway Development Levy (RDL) from Sh28 billion; and Sh107 billion through the Road Maintenance Levy Fund (RMLF), up from Sh87 billion.

KRA expects the projected revenues to mirror actual collections during the three-year period, but has pointed out the rapid growth of the informal sector, which it has struggled to net into the tax bracket, as a threat to achieving the revenue collection projections.

Covid-19 pandemic

This comes as massive jobs losses caused by the Covid-19 pandemic have seen record-setting registrations of new informal businesses, whose lack of formal structures makes it difficult for KRA to monitor and tax. 

“More broadly, the Covid-19 pandemic has led to the emergence of new business models, increased levels of digital transactions and growth in the hard-to-tax sectors, such as the informal sector, which has become a significant part of the economy,” KRA said.

The agency also blames Treasury funding deficits and a poor business environment due to the pandemic as key factors behind its inability to hit revenue collection targets it had set for the just ended three-year cycle that started in 2018.

KRA collected Sh4.84 trillion in tax revenue against a target of Sh4.89 trillion over the period, leaving a deficit of Sh50 billion.

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