NAIROBI: The Kenya Revenue Authority is banking on consumption taxes to boost revenue collections in the second half of the present financial year to June as income tax streams lag due to a “temporary” economic downturn.
Commissioner-general John Njiraini is optimistic the performance of the consumption taxes – Excise duty and Value Added Tax – will be even robust in the six-month period to June.
The two tax streams, which have traditionally underperformed, grew by between 18 and 20 per cent in five months to November, Njiraini said without providing the actual numbers. The growth is largely driven by the overhaul of the law governing them and a revamp of their administration in the last three years.
A new VAT administration was ushered in on September 2, 2013 with a standard levy of 16 per cent on most commodities, with a three-year transition for a few basket of basic goods.
Progressive reforms of the Excise Duty Act and its administration, including electronic tracking of production at the factory level, have also been undertaken in earnest since 2012. This culminated in Excise Duty Act of 2015, enforced by Treasury CS Henry Rotich on December 1.
“The dividend [of reforms] is coming. We expect very, very strong performance for consumption tax in the second half including for VAT,” Njiraini said on December 23. “Excise tax is already above target and this is even before we have started seeing the fruits of the new Excise Act.”
He said the impact of the new Excise tax law, whose first payments were due on December 20, will be felt from this month. Under the new Excise regime, tax on bottled water, fruit juices containing sugar or sweeteners, soft drinks and vegetable juices has been raised to Sh10 from Sh3 per litre, while that on food supplements has been fixed at 10 per cent.
Levy on beer, whose consumption went up during the festive season, also rose to a flat rate of Sh100 per litre from the previous Sh70 per litre or 50 per cent of the ex-factory price – whichever is higher.
Cigarette smokers are also paying more after the tax went up to Sh2,500 per mille [1,000 sticks] from the previous complex regime that charged Sh1,200 per mille or 35 per cent of the retail sales price on some categories of cigars. Motorcycles transport business, popularly called Boda Boda, has also been slapped with a Sh10,000 duty per unit.
Importers of second-hand cars, shipped after December 1, are also to pay Sh200,000 excise tax per unit aged more than three years and Sh150,000 for vehicles less than three years old. The taxman is, however, sweating to hit targets in income taxes, which have historic performed well. The target for this fiscal year is Sh1.253 trillion – Sh252 billion more than the Sh1.001 trillion collected in the year to June 2015.
A freeze on employment in public sector unless urgently necessary, job cuts in some industries in the private sector and little growth on payrolls have hurt Pay As You Earn and corporation taxes. A record 17 publicly traded companies issued profit warnings for 2015, underlining a difficult business climate last year compared to 2014.
“Performance is depressed for businesses. Banks, for example, from the indications we have gotten,…are having challenges because of the high bad debt provisioning and exchange rate losses that arose from the volatility of the shilling,” Njiraini said. “We are seeing some growth for corporation tax but is very low in comparison with what we had anticipated. We are collecting, we are growing but we are not growing as fast as had anticipated.” PAYE, Njiraini said, grew by 7.5 per cent between July and November against a target of 18.6 per cent.
“We are seeking to understand this because even after you get out large project like the Standard Gauge Railway what you see generally is that payroll numbers are not growing. In some industries like steel, I was speaking with one of the players, … and they told me in that last two months the entire industry has lost 18,000 jobs. ” The reason for job cuts, he said, is largely related to low capacity and reduced demand. “But we believe this is temporary and we are going to get out of it.”