National Treasury Cabinet Secretary Ukur Yattani has acknowledged the decline in revenue collection occasioned by the economic crisis brought about by the Coronavirus pandemic.
Speaking at Parliament buildings during the reading of the 2020/2021 budget, the CS said the tax measures introduced by the government to cushion Kenyans from the effects of Covid-19 on the economy will cost the exchequer an estimated Ksh172 billion in revenue foregone by the government in one financial year.
To increase liquidity in the economy, the government lowered tax rates for corporate and personal incomes, turnover tax, value-added tax and provided tax relief to low-income earners and employees.
Dr Yattani reiterated that the government was committed to cushioning Kenyans against the negative impact of Covid-19 on the economy. The global health crisis saw many businesses shut down and others scale down operations as the government announced stringent measures to contain the spread of the disease.
Import related taxes such as import duty, VAT on imports, import declaration fees and railway development levy have been negatively affected due to lower imports and reduced trade across the countries. Domestic taxes are also noted to have reduced greatly owing to declining incomes of citizens and reduced consumption of goods.
In today’s address, Dr Yattani noted that in 2018, the government had forgone about 535 billion of 6 per cent of the GDP through tax exemptions and incentives. They therefore proposed to lower the level of tax exemptions and also pointed out that although tax incentives are well intended, they have limited the Government’s capacity to fund critical expenditure.
Consumers have also not benefited through reduction in the cost of goods and services, favouring various sector players while leaving out others. The finance CS, therefore, tabled the ministry’s proposal to minimize existing tax distortions and provide a level-playing field for all players.
Through the finance bill 2020, there will be further removal of existing tax exemptions. The Kenya Revenue Authority (KRA) will therefore undertake various actions to enhance revenue mobilization to build on critical aspects such as social and infrastructure programs.