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Kenya Revenue Authority Misses VAT Target

Lorys Charalambous,, Cyprus

27 November 2012

The Kenya Revenue Authority (KRA) has missed its tax revenue collection target by Sh45bn in the first quarter of this financial year, a figure which includes a KES13.1bn (USD151m) shortfall in value-added tax (VAT) collection, at a time when a new VAT bill, which was to have introduced a 16% rate on many basic commodities, has been shelved until after next March's elections.

The quarterly economic and budgetary review from the Ministry of Finance says that only KES165.7bn was collected, 21% below a target of KES211bn in June-September 2012. The revenue collection performance further led to a rise in the overall cumulative fiscal shortfall to KES71.6bn, from a target of KES58.7bn. The government's total debt stood at KES1.78 trillion by June this year and analysts say this may urge the government to look for external funding from international banks.

Part of the shortfall can be explained by the government's abolition of the old system of withholding VAT, although KRA Commissioner-General John Njiraini is opposed to its re-introduction.

Finance Minister Njeru Githae who has laid the blame for the governments poor VAT collection performance on larger tax payers, has threatened to recommend re-introduction of the withholding regime if companies do not comply by paying all VAT due.

The Treasury recently shelved plans to reintroduce a new VAT bill until after the March 4 elections. The bill would have introduced a 16% VAT on fertilizer, maize flour, bread, wheat flour, milk and books, a proposal which drew substantial criticism both from the public and from some lawmakers. In its place the government has proposed to increase excise tax on beer by 10% to 50%, introduce a 10% tax on mobile money transfer services and a further 20% from sale of property or shares in the oil and mining sectors.

The shelving of the bill is likely to put a strain on relations with development partners such as the International Monetary Fund (IMF) and the World Bank who had advocated its revenue boosting potential.

TAGS: tax | value added tax (VAT) | budget | Kenya

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