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Audit reveals KRA’s Sh1.7trn in uncollected taxes

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Taxpayers are staring at about Sh1.7 trillion losses in contentious and uncollected taxes, exposing the Kenya Revenue Authority (KRA) to growing revenue shortages even as it struggles with collections.

The amount includes Sh542 billion reported by the taxman as “erroneous, uncollectable and doubtful debts” and Sh1.16 trillion tax arrears that have been outstanding for more than three years, a report by the Auditor-General shows.

The report, capturing unreconciled arrears of revenue balance by the end of June 2023, showed that net tax arrears totalled Sh999.6 billion.

The Sh999.6 billion was net of Sh541.8 billion marked as “erroneous, uncollectable and doubtful debts”, which constitutes Sh456 billion outstanding taxes in dispute, ShSh54.5 billion resolved disputes not updated in taxpayers’ ledgers, Sh20.9 billion pending backlog waivers and Sh10.3 billion erroneous value-added tax auto assessments.

“Further, the ageing analysis of the arrears of tax receipts indicates that arrears totalling Sh1,161,076,105,513 have been outstanding for over three years casting doubt on the accuracy and recoverability of the balance,” the Auditor-General report notes.

The arrears of tax receipts include an amount of Sh245.5 billion with respect to public sector revenue debt, two-thirds of which the Auditor-General said could not be reconciled.

“However, third-party confirmation from 89 Public Sector Department taxpayers with revenue debt of Sh65,525,185,389, revealed balances totalling Sh21,071,361,935 resulting in an unreconciled variance of Sh44,453,823,454,” said the report.

The audit also cites nine public entities as having Sh145 billion in long-standing non-tax arrears, out of the total of Sh268 billion in non-tax receipts from government investment and public enterprises.

Besides the Sh145 billion arrears by nine entities, the arrears include loan redemption receipts of Sh40 billion and loan interest receipts of Sh36.76 billion, which have been outstanding for more than three years.

The entities include Kenya Railways Corporation (Sh124.7 billion), Athi Water Services Board (Sh7.6 billion), Coast Water Services Board (Sh5 billion), National Water Conservation (Sh2 billion), Lake Victoria North Water Service Board (Sh1.7 billion), Lake Victoria South Water Service Board (Sh1.6 billion), Tanathi Water Services Board and Tana Water Service Board (Sh1.13 billion each).

“However, no satisfactory explanation was provided for the failure by the State Corporations to service the loans, resulting in arrears,” said the Auditor-General.

The report said while the KRA provided reasons for the non-receipt of the revenues and explained measures in place to improve the outstanding debt arrears position, “it is not clear why some unrecovered long outstanding balances continue to be retained in the revenue statements.”

“In the circumstances, full recoverability of the outstanding arrears of revenue could not be confirmed,” said the report.