Kenyan tax agency urged to reprogram systems to hit revenue targets

By Steve Umidha

The Kenya Revenue Authority (KRA) has been challenged to reprogram its tax systems during this pandemic period if the agency is to improve compliance and meet its annual targets.

KRA missed its target by Sh350 billion, the highest in five years that saw the Government net Sh1.43 trillion in taxes in the last financial year against an initial target of Sh1.8 trillion the national treasury had set for the taxman.

The taxman has constantly been missing its target, but that figure was the highest owing to the devastating impact of Covid-19 which hit the economy hard.

Now a new report by a tax advocacy group wants the agency to tighten and reprogram its systems if the worrying trend is to improve.

“First, the raising of additional tax revenues must be progressive. Where the pandemic itself has actively exacerbated inequalities, the response must mitigate these by ensuring that those most able to contribute more, do so – and that ultimately we build back better, rather than replicating the gross inequalities that currently characterize our societies,” reads a report released last Friday by the Tax Justice Network (TJN) report.

The State of Tax Justice 2020 has also recommended a clear-cut consideration to companies particularly those operating virtually and individuals hit hard by the pandemic with most of them having had to close shops in totality.

“Additional tax revenues should be raised above all from those who are profiting most in these difficult times, not from their own ingenuity or hard work but from sheer luck that enables them to benefit from the unprecedented state interventions in the economy. Enormous, unearned profits are accruing to the owners of businesses like Amazon, purely because most of their physical competition has been closed by order,” reads the report.

KRA’s fiscal deficit – which is the difference between a country’s spending and tax revenues was the deepest budget hole since June 2017 when the government borrowed Sh788 billion to finance mega infrastructural projects, including the Standard Gauge Railway (SGR) and is expected to push the country’s total debt to around Sh6.7 trillion.

Negative effects of Covid-19 is expected to further hamper tax collection even harder in the current financial year with the budget deficit also expected to widen in the current fiscal year, at a time the National Government will borrow Sh840 billion in the 12 months to June 2021 to run its projects including payment of salaries and wages to its public servants.

Lack of modern and well-understood tax policies has also been blamed for continuing trend in which wealthy and corrupt individuals as well as big companies are using the system to avoid paying their share of taxes to the tax agency

It now wants a longer-term agenda to reprogram the global tax system must include the potential for wealth taxes and much more effective capital gains taxes in relation to offshore assets and income streams.

“Third, the additional tax revenues should be raised above all from those who are profiting most in these difficult times, not from their own ingenuity or hard work but from sheer luck that enables them to benefit from the unprecedented state interventions in the economy.

Enormous, unearned profits are accruing to the owners of businesses like Amazon, purely because most of their physical competition has been closed by order,” commented Clifford Omondi, a Kenyan tax expert who has also called for a thorough check into operations of informal sector which has been accused of dodging their tax obligations.