Revenue growth stagnates despite increased tax rates
National Treasury and Economic Planning Cabinet Secretary Njuguna Ndung’u.
Tax receipts for the first two months of the current financial year grew at a largely unchanged rate compared to a year ago despite the phased enforcement of new measures by the Ruto administration.
The Kenya Revenue Authority collected Sh317.58 billion in taxes for the two months through August, Treasury Secretary Njuguna Ndung’u reported Friday, a growth of 13.33 per cent over Sh280.23 billion in a similar period last year.
The growth was, however, the slowest in three years, having grown 13.37 per cent in the corresponding period last year over Sh247.18 billion in the July-August period of 2021. The growth rate in the same period of financial year 2021-2022 was 31.42 per cent.
The taxman started implementing the first phase of the new taxes in the review period after the Court of Appeal allowed enforcement of the Finance Act 2023 despite a pending case at the High Court.
Some of the measures that took effect between July and August are the doubling of value-added tax (VAT) on fuel to 16 per cent and a new 1.5 per cent housing levy that is deducted from the gross pay of all workers.
Further, workers earning between Sh500,000 and Sh800,000 monthly will be taxed pay-as-you-earn (PAYE) at the rate of 32.5 per cent, while those who earn more than Sh800,000 monthly will pay 35 per cent.
The new measures have also raised the payroll tax for workers earning between Sh500,000 and Sh800,000 monthly to 32.5 per cent from the previous top rate of 30 per cent, while those who earn more than Sh800,000 monthly now 35 per cent.
The Ruto administration is banking on the new taxation measures to net Sh2.496 trillion to fund his first full-year budget in office. This means the taxman has to collect an average of Sh207.99 billion monthly on a prorated basis to meet the full-year goal.
The enforcement has traditionally been slow at the beginning of the financial year as the KRA and taxpayers update their systems to reflect the new changes in taxation.
New painful taxes, which have hit salaried workers and importers hardest, are key in helping the Treasury achieve fiscal consolidation plans for the current year ending June 2024.
The austerities target to cut the hole in the budget – which is filled through borrowing – to 4.4 per cent of gross domestic product from an estimated 5.8 per cent in the year ended June.
