NAIROBI – The Budget and Appropriations Committee (BAC) of the National Assembly has endorsed an additional Sh1.2 billion ($11 million) allotment to the standing budget of the Kenya Revenue Authority (KRA). This move aligns with President William Ruto’s effort to close the tax evasion loopholes long exploited by “hustlers,” Kenyan informal and agricultural sector workers who have previously avoided tax obligations.
The BAC supported amendments to the National Treasury’s master plan and services budget to include these funds, crucial for recruiting tax assistants as the government bolsters its tax efforts against Kenyans operating in the informal and farming sectors.
The BAC communicated its recommendation to the entire assembly stating, “Supplement Sh1.2 billion for KRA to hire tax assistants.”
The 2023 Budget Policy Statement (BPS) revealed by the Treasury points to an untapped revenue reservoir of Sh2.8 trillion from the Micro, Small, and Medium Enterprises (MSMEs) sector, a relatively unexplored tax base.
The newly issued National Tax Policy (NTP) aims to streamline Kenya’s taxation framework for the upcoming three years. The plan includes unified tax, levy, and fee collection across national and county governments, improved information sharing, and strategies to snare tax avoiders, thereby addressing current collection gaps.
The treasury will target notoriously challenging sectors to tax, including agriculture and informal sectors, aiming to bolster revenue.
The policy lays out the government’s intention to intensify tax collection efforts in the informal sectors, stating, “The government will identify methods to amplify taxation of informal sectors, potentially including the establishment of tax collection representatives.”
The policy also underscores the importance of providing education programs to farming communities and informal sector groups about taxation and mandates their registration with related sub-sector organizations and cooperative societies.
Moreover, the NTP calls for enhanced cooperation between county and national governments to share vital information that can widen the tax net, while increasing revenue collections.
The national and county governments could soon centralize their tax, levy, and fee collection processes, marking a significant shift from the current disjointed collection channels. “Gradually adopt a cohesive system for tax, fee, and levy collection across national and county governments,” the NTP suggests.
This strategy will disrupt many areas currently taxed by counties, including parking fees, business licenses, and cess. The plan will also influence the counties’ Own Source Revenue (OSR), where many localities underperform due to limited capacity and ineffective revenue collection strategies.
According to last year’s Commission on Revenue Allocation report, Kenya’s 47 county governments have the potential to generate Sh216 billion annually. However, they manage to collect just Sh31 billion, representing over 80% underperformance.
In the remaining two months of the 2022/23 fiscal year, the government faces the challenge of collecting at least Sh535 billion in taxes. As of the end of April, the KRA had garnered Sh1.57 trillion, meaning the KRA needs to amass Sh535 billion more to achieve the budget’s Sh2.1 trillion goal. This target marks a 70% increase compared to the average collection over the preceding 10 months.