The government's tax and Appropriation-in-Aid revenues stood at Sh1.33 trillion as of March 2020, falling short of its 2019/2020 financial year nine-month target.
The state targeted to have collected Sh1.54 trillion during the period, resulting in a deviation of Sh211.9 billion.
"This shortfall from target was attributed to deviation from targets of the ordinary revenues by Sh132.3 billion and Ministerial A-in-A by Sh79.6 billion," Treasury CS Ukuru Yatani told the senate ad hoc committee on the Covid -19 pandemic.
He added that the performance was being impacted by a slump in import-related taxes including import duty, VAT on imports, import declaration fees, and railway development levy.
Ordinary revenue collection amounted to Sh1.22 trillion (11.7 percent of GDP) against a target of Sh 1.35 trillion.
According to Yatani, the Sh132.3 billion shortfall in ordinary revenue collection was recorded in all broad categories with excise taxes recording a shortfall of Sh35.2 billion.
Other categories of taxes that performed below target were Income tax at Sh39.2 billion, import duty Sh17.8 billion, and VAT Sh34.8 billion.
“At the same time, other domestic taxes have shrunk due to declined incomes and depressed consumption as the Government enhanced Covid-19 containment measures that restricted movements of persons within four counties and the rest of the Country,” Yatani said.
A slowdown in business activity as a result of the Covid-19-induced trade and travel restrictions is expected to further deplete tax revenue. This is as a result of reduced tax collection from workers and businesses. Consumption taxes are also expected to decline.
The below-target tax collections are also expected to deepen further in the coming months after President Uhuru Kenyatta assented to the Tax Laws (Amendment) Bill 2020.
The law exempts those earning less than Sh28,000 from paying income tax while those earning above this will benefit from a PAYE tax reduction of between 30 and 25 per cent.
It further lowered turnover tax from 3 to 1 percent, reduced VAT from 16 to 14 percent, revised corporation tax from 30 to 25 percent, and lowered Non-Resident Tax on Dividends from 10 to 15 per cent.
“The extent of COVID-19’s impact on the economy could add excess fiscal pressures resulting in another round of fiscal slippage, which could derail efforts to contain debt growth and further crowd out private sector-led growth after the crisis,” the World Bank said in its Kenya Economic Update.
Early last month the Parliamentary Budget Office (PBO) said revenue collection is likely to drop by Sh122.2 billion between April and June when the new law is effected.
The Kenya Revenue Authority (KRA) last week disclosed the taxman could miss its full-year revenue target of Sh1.7 trillion by Sh283 billion.
“The Commissioner-General submitted that the pandemic shall have a negative impact on tax collections arising from the prevailing economic environment,” documents submitted to the Finance and National Planning Committee indicated.
Total revenue collected during the nine-month period however increased by 12.71 per cent compared to Sh1.18 trillion collected the previous year.