On 11 June 2020, Kenyans will listen to the annual budget statement and get a clearer picture of how the Covid-19 pandemic is affecting the country’s economy.
Revenue figures to fund the budget are therefore likely to be closely watched and are a theme the treasury has recently focused on. In a TV interview in late 2019, finance minister Ukur Yatani spoke to collection trends.
“Revenue has been under-performing for the last 10 years. We are always at the end of the year, we report underperformance of the revenue by about KSh100 billion or even more,” he told Citizen TV.
Treasury would thus adjust its revenue estimates to a more “realistic figure”, Yatani said, and trim the budget.
The country’s financial year runs from 1 July to 30 June. Was the minister correct about the pattern over the last 10 years, suggesting the pandemic will extend the financial pain for Kenyans? We checked.
Tax revenue ‘sluggish’, says minister
Yatani told Africa Check that while appropriation-in-aid had generally done well, ordinary revenue was more “sluggish”.
Appropriation-in-aid usually refers to the money collected by government ministries. The minister described this as “charges in the course of offering government services”. Ordinary revenue includes all taxes collected by the country’s tax authority.
Yatani gave two reasons why revenue collection had underperformed. “I think there’s overestimation of revenue and then there’s also challenges with the enforcement. So the target and what are realised are usually not on par.”
The minister also said that certain relief efforts missed their target. “Sometimes we give concessions in terms of tax exemptions and the benefits are not passed on to the intended beneficiaries.”
Govt undershot targets nine years out of 10
Government revenue targets “change a lot” in the course of a financial year, John Kinuthia, a lead research analyst for the International Budget Partnership based in the Kenyan capital Nairobi, told Africa Check.
The “printed estimates” or “budget” column in treasury documents show the original ordinary revenue target at the beginning of the year, Kinuthia said.
“That tells you, this is where we started. From a budget credibility perspective, you look at what was approved at the beginning of the year versus the actual performance at the end of the year.”
|Kenya ordinary revenue: Starting targets and actual revenue raised from 2009/10 to 2018/19 (KSh billion)|
|Financial year||Revenue target (printed estimates)||Actual revenue||Difference|
|2012/13||854.5****||775.71 or 779.63||-78.8 or -74.9|
|2011/12||713.6***||681.81 or 690.72||-31.8 or -22.9|
|2010/11||609.6*||621.91 or 609.22||12.3 or -0.4|
Sources: 2020 Budget Policy Statement, Budget Review and Outlook Papers; 12015/2016 Quarterly Economic and Budgetary Review Fourth Quarter; 22012 Budget review and outlook paper; 32014 Budget review and outlook paper
Based on the data, Kenya underperformed on its ordinary revenue targets for at least nine of the ten years from 2009/2010 to 2018/2019. The outlier is 2010/11, for which there are two sets of figures, where the country either underperformed by KSh400 million, or overperformed by KSh12.3 billion.
The minister is correct in terms of a consistent underperforming of ordinary revenue. (Note: For appropriations-in-aid, the government has exceeded its target in five of the last ten years. See the data here.)
Targets unrealistic, says tax consultant
Nikhil Hira, a tax consultant in Nairobi, agreed the country has struggled to meet its revenue targets. “Out of the last ten years, I can’t remember the last time we exceeded the target,” he told Africa Check.
Hira said that revenue collected was barely keeping pace with the government’s recurring bills, including debt repayment.
“So the question is, why can’t we meet our targets? One obvious answer is the targets are just unrealistic. And I think that comes from the fact that the government tends to say this is what we want to spend, so this is the amount we have to collect.
“The reality is if you think of your own home, you bring in an income and you think this is the money I‘ve got and this is the amount I can spend.”
Non-compliance among small businesses
The minister’s statement on underperformance was largely accurate, Fred Omondi, a tax partner at Deloitte Kenya, told Africa Check.
“Overall the statement is correct in terms of falling short of the tax collection targets.” He said reasons for this include cycles of political instability and overly “ambitious” targets.
But the shortfall couldn’t all be attributed to collection, because the tax authority had been very aggressive on this front, Omondi said. Compliance was also a factor.
“In the smaller businesses, where it’s a bit more difficult to enforce compliance, maybe there’s some leakage as well, given the size of the so-called informal sector. There’s a tendency to focus on the well-established players.”
Conclusion: Yes, Kenya consistently fallen short on tax revenue targets since 2010
Kenya’s finance minister claimed that the country had fallen short of meeting its tax revenue targets for the past 10 financial years.
Treasury documents show this was correct for ordinary revenue for at least nine and possible all years. In one financial year, 2010/11, differing official data makes both underperformance or overperformance possible. We therefore rate this claim correct.
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