Government seeks to boost tax collection to cut deficit

folarin okunola

April 19, 2016 4:55 PM

In a bid to reassure investors, East Africa's biggest economy aims to cut the deficit to 6.9 percent of gross domestic product in the fiscal year starting in July, from a forecast 8.1 percent for 2015/16.

A currency dealer counts Kenya shillings at a money exchange counter in Nairobi in a file photo. REUTERS/Antony Njuguna

Kenya, whose budget deficit this fiscal year unnerved investors, is recruiting new taxpayers and investing in technology to boost collections, the head of its tax agency said on Tuesday.

Kenya's tax collection stands at about 19 to 20 percent of GDP, more than many African states but well below those of emerging markets like South Africa, where it is 26 percent.

Kenya Revenue Authority (KRA) Commissioner General John Njiraini told a news conference the authority was reviewing income tax laws to make them simpler and to enhance collections.

"We are fairly confident that going forward, in the next two to three years, we should be seeing tax to GDP ratio bounce back to the levels that the government has set itself," he said.

He did not give a specific figure, but the government has previously said it wanted to target levels of emerging markets like South Africa, rather than fellow frontier markets.

KRA was also developing technology, such as a mobile phone application, which would allow users to check if consumer goods were tax compliant before they bought them, Njiraini said.

Illicit bottled water and juices were estimated to account for about 60 percent of the revenues lost through non-tax compliant sales, denying revenue to the tax authority and licensed manufacturers.

KRA recorded an increase in revenue of 11.7 percent in the nine months to March - the first three quarters of the 2015/16 fiscal year - falling short of a target of 20.9 percent.

Njiraini attributed the slower growth to delayed passage of related legislation and a weak business environment.

Banks, a major sector of the economy, have seen profit growth slow and bad loans rise.

The Finance Ministry is cutting spending by ministries in the fiscal year to June as a result of slower rise in revenue collection than expected.

folarin okunola