Sh714.97bn shortfall a huge mountain for KRA to climb

The government is facing a revenue shortfall of Sh714.97 billion just three months to the close of the financial year.

That is bad news for Treasury Cabinet Secretary Njuguna Ndung’u, who now has to balance between paying debts that are gobbling up nearly two-thirds of revenue, and disbursing delayed public servants' salaries among other obligations.

Kenya Revenue Authority (KRA) collected Sh1.393 trillion in taxes in the nine months to March 2022, against a full-year target of Sh2.108 trillion, meaning it would have to collect at least Sh238.3 billion every month to June to cover the shortfall.

That is a tall order, given that Times Tower banked Sh157.17 billion in tax revenue in March, the highest monthly collection since December when it collected Sh194.05 billion, according to data released by the National Treasury on Thursday.

KRA began the current financial year on a low note by collecting Sh130.6 billion in taxes in July, which remains the lowest amount collected in a month in the 2022/23 financial year.

The taxman then collected Sh149.62 billion in August, Sh184.94 billion in September, Sh142.75 billion in October and Sh150.63 billion the following month.

Revenue collection hit a high of Sh194.05 billion in December, owing to increased economic activities that came with that month’s festivities before dropping sharply to Sh152.13 billion in January.

In February, collection shrunk to Sh131.4 billion as inflation jumped back to 9.2 per cent, slowing down consumption, before bouncing back to hit Sh157.17 billion collected last month.

Perspective

To put the task that faces KRA into perspective, the agency has not collected more than Sh194.05 billion in any month in the current fiscal year.

Analysts say that while the tax agency is likely to increase revenue collection over the next three months, owing to an improving business environment, it is likely to miss the target for this year which will force the government to borrow more.

“Looking at the latest cumulative tax revenue this fiscal year, it is evident that KRA will miss its targets. To meet the target, KRA has to average Sh238.3 billion per month from April through June. Fair enough, April to June are high-yielding months,” said Churchill Ogutu, an economist.

The below-target collection has plunged the government into a cash crunch that has made it fail to pay salaries.
Thousands of government employees went for Easter holidays without March salaries and some county workers are owed arrears of three months.

Governors have protested the failure of the Treasury to release the money to counties for the fourth consecutive month. 
By end of March, counties said they were owed Sh122.1 billion, with governors blaming the withheld cash for failure to settle salaries.

The counties are owed Sh29.6 billion for December, Sh31.45 billion for January and February each and Sh29.6 billion for March.

This is the longest period devolved units have gone without receiving their equitable share of the revenue.
“We are not going to borrow money to pay salaries,” the President said on Tuesday.