Kenya Revenue Authority (KRA) has maintained an upward trajectory in revenue collection, after recording a 6.7% growth in the financial year 2022/2023. Revenue collection has progressively increased in the last 5 years from KShs. 1.58 Trillion in FY2018/2019 to KShs. 2.166 Trillion in FY2022/23, representing a growth of 37% (KShs 586.259 billion) in the last five years.
Despite an economic slowdown occasioned by an unfavourable global fiscal environment, KRA recorded a revenue collection of KShs 2.166 Trillion for the period July 2022 – June 2023 compared to KShs. 2.031 Trillion in the last financial year. The collection for the financial year 2022/2023 was therefore higher than what was collected in the financial year 2021/2022 by KShs 135 Billion.
The revenue performance was affected by the slowed domestic economic growth in 2022 which went down to 4.8 percent from 7.6 percent in 2021. This mirrors the World real GDP growth that decelerated to 3.4 per cent in 2022 from a growth of 6.0 per cent in 2021. The decelerated domestic economic growth was due to adverse impact of multiple shocks that affected the economy, including a prolonged drought, international conflicts that disrupted the supply chain among others. The revenue collection signifies a performance rate of 95.3 per cent against the target. This is the second year in a row that KRA has surpassed the two trillion mark.
The exchequer revenue grew by 6.9 per cent. This is after KRA collected KShs. 2.030 Trillion compared to KShs. 1.900 Trillion collected in the previous financial year. This translates to a performance rate of 95.1 per cent against the target. Exchequer revenue constitutes all the mainstream Government revenues, i.e., Taxes on International Trade and Transactions, Excise taxes, Taxes on Income, Profits and Capital gains, Taxes on goods and services, and Property taxes.
KRA is also mandated to collect revenue on behalf of other government agencies mainly at the ports of entry. These include Road Maintenance Levy, Air Passenger Service Charge, Aviation Revenue, Petroleum Development Fund amongst other levies. During the financial year ending June 30th 2023, KRA collected KShs. 136.390 Billion on behalf of the agencies reflecting a growth of 3.7 per cent compared to the last financial year.
The revenue performance reflects the prevailing economic indicators, especially the projected GDP growth of 5.8 per cent in FY 2022/23 (Budget Policy Statement 2023) compared to a growth of 6.5 per cent in FY 2021/22.
The overall inflation remained above forecast levels averaging 8.78% compared to an average of 6.15% in the FY 2021/2022. This was mainly driven by high fuel, electricity and food prices. The general economic environment was also influenced by the exchange rate of the Kenya Shilling against the dollar, which registered a consistent depreciation.
Trade and Domestic Taxes Performance
During the financial year, Domestic Taxes registered a revenue growth of 8.5% after collecting KShs. 1.407 Trillion against a target of KShs. 1.481 Trillion. This translates to a performance rate of 95.0 per cent.
Customs taxes recorded a performance rate of 95.6% with a collection of KShs. 754.090 Billion. This translates to a revenue growth of 3.5 per cent compared to the same period in FY 2021/2022.
Despite overall import values increasing by 15.3%, Customs taxes performance was in part affected by growth in exemptions and remissions, which grew by 39.7%, driven by special exemptions accorded to rice, maize, sugar, and cooking oil. These products account for 24.8% of exemptions accorded in the FY 2022/2023. The special exemptions were part of the government’s strategies to mitigate against adverse effects of drought and to reduce the cost of living.
Performance of Key Tax Heads
Excise on Betting: Excise on Betting registered a stellar performance rate of 116.2% after collecting KShs 6.640 Billion against a target of KShs 5.715 Billion. Excise on Betting collected a surplus of KShs 925 Million and grew by 30.0% compared to the same period in FY 2021/2022. The performance is attributed to the integration of the betting companies into the KRA tax system. The integration has streamlined tax remittance from the sector and scaled up revenue collection.
Domestic VAT: Domestic VAT collection stood at KShs. 272.452 Billion reflecting a growth of 11.3 per cent compared to the previous year. The growth is attributed to the implementation of the Tax Invoice Management System (TIMS), which has enhanced compliance among VAT registered taxpayers.
It is important to note that VAT growth scaled up to 18.0% in February – June 2023 upon implementation of Tax Invoice Management System (TIMS & eTIMs), from an earlier slower growth of 6.7% in the first 7 months of FY 2022/23. This performance is expected to be sustained in the coming year once full rollout of eTIMS is realized amongst the VAT registered taxpayers.
Corporation Tax: Corporation tax performed at 94.2% with a collection of Kshs 263.819 Billion. This is a growth of 9.0 per cent over the last financial year. This performance was driven by increased remittance from sectors like: Finance & Insurance; Information & Communication; Manufacturing; Wholesale & Retail Trade; and Electricity, Oil, & Gas. These sectors contributed 77.8% of the Corporation taxes.
Pay As You Earn (P.A.Y.E): P.A.Y.E registered a growth of 7.2% after collecting KShs. 494.979 Billion. The performance was mainly driven by remittance from private firms and public sector, which grew by 10.7% and 1.9% respectively.
Domestic Excise: The tax head recorded a growth of 2.8% in FY 2022/23, with a collection of KShs 68.124 Billion, which translates to a performance rate of 91.4%. The performance is attributed to the growth in revenue from: Cosmetics (60.6% growth); Wines and Spirits (8.7% growth); Bottled Water (4.4% growth); Soft Drinks (8.0% growth); Beer (0.4% growth); and Tobacco (2.8% growth). KRA continues to enhance surveillance in the sector to ensure compliance.
Key Revenue Drivers
The revenue growth is attributed to implementation of key strategies as enshrined in KRA’s 8th Corporate Plan. Some of these strategies include:
Customer support programmes: These programmes are aimed at creating a customer-centric tax environment to enhance voluntary compliance and improve revenue collection. Some of the programmes include: Tax education and awareness; Stakeholder engagements and roundtables; Customer visits to appreciate compliant taxpayers; among others. KRA is also re-branding to Kenya Revenue Service (KRS) with an aim of transforming customer relations, simplifying taxpayer services and efficient engagements with stakeholders.
Tax Base Expansion: This aims to onboard taxpayers previously not paying taxes. The program enabled KRA to collect KShs 14.649 Billion in revenue. Some of the initiatives under the TBE include recruitment of landlords under the Monthly Rental Income (MRI) obligation and Block Management System (BMS) to map out potential taxpayers, etc. Through the programme, KRA recruited 940,483 additional active taxpayers in the period under review.
Taxation of digital economy: Digital Service Tax and VAT on Digital Market Supply have brought inclusivity in payment of taxes, especially from Non-residents. KRA collected a total of Kshs 5.328 Billion from these tax heads, translating to a growth of 207.9% compared to the same period in financial year 2021/2022.
Tax at Source
This programme allows KRA to collect information and revenue directly at the source of income on a real-time basis. Some of the initiatives under this programme that KRA has implemented include;
Electronic Tax Invoice Management System (eTIMS) which has minimised VAT fraud and increased tax revenue. A total of 95,732 VAT registered taxpayers onboarded which led to remittances of Kshs 272. 365 Billion. Revenue performance outlook is expected to improve further upon enhanced uptake of eTIMS. In addition, eTIMS is also expected to achieve simplified return filing through prepopulated VAT returns.
Integration of betting and gaming companies into KRA tax system. The integration has given KRA real-time access to all companies in the gaming and betting sector. This enabled KRA to collect KShs 15.190 Billion in Excise Duty and Withholding Tax from 28 taxpayers that have been on-boarded.
Debt collection initiatives:
KRA enhanced collection from debt programmes on non-compliant taxpayers, netting a total of KShs 99.272 Billion in FY 2022/2023. This performance is attributable to follow-ups on demand notices and the debt instalment plans agreed upon with taxpayers, which has netted KShs 64.681 billion and follow-ups of agency notices, which enabled KRA to collect KShs 34.591 billion, among others.
Dispute resolution framework: The framework enhanced revenue collection from Litigation, Alternative Dispute Resolution (ADR) and Tax Appeals Tribunal (TAT). This enabled KRA to collect KShs 71.836 Billion from 7,458 concluded cases.
KRA has continued to leverage on technology to simplify tax processes and facilitate trade. KRA aspires to implement best-in-class technology platform to drive revenue mobilization by transforming into a highly digitalized revenue administration in facilitating ease of tax compliance and trade. This will be achieved through:
Integration with e-Citizen, IFMIS, other Government Agencies (regulatory authorities, National Addressing System), and private entities for payroll taxes. This will ensure simplified tax processes for all taxpayers including MSMEs (Integrated POS solution, Tax Software, USSD, etc).
Completion of eTIMS rollout with Customer Resolution Management capabilities, and provision of pre-population of VAT Returns on sales/purchases, imports/exports, for consumption taxes. The ultimate target is to implement a comprehensive E-Invoicing system.
Simplification of Customs payment process through inclusion in M-Service, and implementation of intelligent Risk management system, through use of modern technology (AI, Machine learning etc.) in image analysis.
KRA targets to collect KShs 2.768 Trillion by the end of Financial Year 2023/2024 and surpass the KShs 3 Trillion mark by Financial Year 2024/2025. KRA is confident that it will achieve this target and enable the government finance its Bottom-Up Economic Transformation Agenda (BETA) and sustain the country’s economy.
In order to achieve this, KRA is implementing both tax administrative measures and tax policy reforms. KRA will implement the National Tax Policy and the Medium-Term Revenue Strategy (MTRS) for the period FY 2023/24 – 2026/27.
KRA will also develop and implement its 9th Strategic Plan after the end of the 8th Corporate Plan cycle in 2023/24.
Despite the challenging economic environment, taxpayers exhibited resilience and voluntarily paid their taxes to support the country’s economic transformation.
Subscribe to our newsletter!
Follow this link to join our telegram channel - https://t.me/+_wS9EPx2YmIyZmI0