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Kenya Progressing Fiscal Consolidation Efforts

by Lorys Charalambous,, Cyprus

07 February 2017

The International Monetary Fund (IMF) has welcomed both the increased tax revenues now being collected in Kenya, and the Government's commitment to reducing the country's fiscal deficit in the medium-term.

The IMF was undertaking its first review of a stand-by credit facility for Kenya. This agreement involves a commitment from Kenya that it will lower its fiscal deficit to 3.7 percent of gross domestic product by the 2018/19 fiscal year.

The IMF noted that, while tax revenues were marginally below target in 2015/16, due to lower than expected personal income taxes, lower import volumes, and lower reported profits in the financial sector, the first quarter (July to September) of 2016/17 saw a marked improvement in revenue collection.

Value added tax (VAT) and excise duty receipts have been particularly high, the IMF said, "reflecting improvements in revenue administration from the i-Tax and excise goods management systems, new excise tax measures [introduced in the FY2016/17 Budget], and the re-introduction of VAT withholding."

The Government said it is "committed to gradually reducing fiscal deficits, with a focus on higher revenues to protect growth-enhancing public investment and social spending."

The target for 2016/17 is to reduce the deficit to 6.9 percent of GDP. The Government will be monitoring tax revenue developments closely in the remainder of the fiscal year. It said, if necessary, it "will take additional measures – including in the 2017/18 budget – to ensure that the envisaged increase in tax revenues in 2017/18 is achieved."

The Government has already initiated reforms to significantly broaden the country's tax base, which, it is hoped, "will help add a large number of taxpayers into the Kenya Revenue Authority's database and will have positive synergies with efforts to strengthen the collection of other taxes." In addition, it "will identify additional areas of improvement in our tax administration and incorporate these into our reform agenda for 2017/18."

Supported by World Bank technical assistance, the Government is also conducting "a review of existing tax expenditures in order to identify their size, type (e.g. exemptions, reduced rates), and evolution over time. Based on the results of this study, expected to be completed by January 2017, [Kenya] will devise measures to reduce tax expenditures starting in July 2017."

TAGS: compliance | tax | value added tax (VAT) | tax compliance | fiscal policy | gross domestic product (GDP) | budget | International Monetary Fund (IMF) | excise duty | Kenya | individual income tax | Tax

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