In spite of the challenging operating economic environment brought about by the COVID-19 pandemic, the Kenya Revenue Authority (KRA) has defied all odds to surpass its revenue target after eight (8) years, since FY 2013/14. This is after revenue collection in the FY 2020/21 (July 2020 – June 2021) reached a new record of Kshs 1.669 Trillion compared to Kshs. 1.607 Trillion collected in FY 2019/20.
The FY 2020/2021 revenue target as reflected in the 2021 Budget Policy Statement was Kshs. 1.652 Trillion which KRA surpassed with a surplus of Kshs. 16.808 Billion. This represents a performance rate of 101% and revenue growth of 3.9% compared to the last Financial Year. This performance is consistent with the prevailing economic indicators, especially the projected GDP growth of 0.6% in 2020.
During the financial year, KRA also recorded a milestone after revenue collection more than doubled in the last 10 years from Kshs. 707 billion in FY 2011/12 to Kshs 1.669 Trillion in FY 2020/21 representing a growth of 136% in the last ten years.
In the period under review, the exchequer revenue grew by 2.3% with a collection of Kshs. 1.544 Trillion compared to Kshs. 1.510 Trillion collected in FY 2019/20 and represents a performance rate of 100.9% against the target of Kshs 1.530 Trillion. The performance of Kshs. 1.544 Trillion is before accounting for Kshs. 18.5 Billion that the Treasury has undertaken to pay on behalf of taxpayers for various reasons including economic hardship.
Customs and Domestic Taxes Performance
The Domestic Taxes Department (DTD) collected Kshs. 1.039 Trillion during the financial year translating to a performance rate of 99.8% while Customs and Border Control (C&BC) collected Kshs. 624.77 Billion surpassing its target of Kshs 606 Billion representing a performance rate of 103.0% and recording a surplus of Kshs 18.248 Billion.
Petroleum taxes amounted to Kshs 226.680 Billion posting a growth of 34.5% and a surplus of Kshs. 12.252 Billion against a target, while Non-oil revenue recorded a growth of 16.4% with collections amounting to kshs 398.089 Billion which was above target by Kshs. 5.996 Billion.
Performance of Key Tax Heads
Corporation Tax: The tax head recorded a growth of 3.7% in FY 2020/21. This performance was driven by increased remittance from Energy, Agriculture and Construction sectors with a growth of 222.7%, 33.1% and 31.9% respectively. This is despite the reduction of the tax rate from 30% to 25% in the first half of the financial year.
PAYE: The tax head declined by 9.3% in FY 2020/21, a drop from an average growth of 2.0% recorded during the same time last year. The decline was driven by a reduction in the employment rate emanating from measures taken by mainly private firms to reduce operating costs as a result of the Covid-19 pandemic. The tax head was also affected by the reduction of the top PAYE rate from 30% to 25% and a 100% tax relief for persons earning below Ksh. 24, 000 per month.
Withholding Tax: The tax head recorded a growth of 3.8% in FY 2020/21, which is a drop from an average growth of 18.2% recorded last year. The performance was negatively impacted by depressed economic growth due to the impact of the Covid-19 pandemic.
Domestic Excise: the tax head recorded a growth of 12.0% in FY 2020/21, compared to a decline of 6.4% recorded in the last financial year. The performance turnaround is attributed gradual reopening of the economy and extended operating hours for bars and restaurants.
Domestic VAT: Domestic VAT recorded a decline of 7.9%. The performance of the tax head was primarily affected by the COVID-19 pandemic, which saw business turnovers decline. The decline was also affected by the reduction of the VAT rate from 16% to 14%.
Key revenue drivers
During the period under review, KRA implemented a number of Revenue Enhancement Initiatives that enabled the Authority to enhance revenue collection. This was largely driven by enhanced compliance enforcement efforts and the implementation of new tax measures focused on ensuring that that non-compliant taxpayers pay their tax due.
The good performance is also attributed to Tax Base Expansion (TBE) which was a key deliverable in the 7th Corporate Plan. Through this initiative, KRA recruited more taxpayers through the newly implemented taxes including Digital Services Tax, Minimum Tax, and Voluntary Tax Disclosure among others. Over the 7th Corporate Plan period, active taxpayers increased from 3.94 Million to 6.1 Million.
The introduction of Alternative Dispute Resolution (ADR) also saw taxpayers come forward to find an amicable solutions in disputes with KRA. With the main objective being to ensure, faster, objective and efficient resolution of tax disputes, ADR enabled KRA to unlock Kshs 31.435 Billion in taxes out of 552 cases resolved during the FY 2020/2021.
The enhanced recovery of tax arrears saw KRA mobilise Kshs. 93.7 Billion in the FY 2020/2021 compared to Kshs 84. 7 Billion collected in FY 2019/2020.
The technology investment made by the Authority over the years was instrumental during the peak of the covid-19 pandemic. Technology platforms drove revenue mobilization through data-led compliance management frameworks. The automation of KRA processes, especially during the Covide-19 pandemic, enabled the Authority to improve taxpayers’ services and subsequently collect more revenue. For example, KRA implemented the use of a Mobile Service (M-service) the platform for specific tax administration processes: registration; tax filing and payment of some tax obligations; and enquiry services. During this period, all goods declared under the Single Customs Territory framework were monitored using the Regional Electronic Cargo Tracking System (RECTS) and all Customs related inquiries and applications were also processed online. These are just but a few initiatives put in place.
KRA also entrenched a performance management culture which enhanced accountability and productivity of the staff, thus driving the strong financial year performance. In addition, KRA has also intensified its fight against tax evasion to ensure revenue is not lost.
In the Financial Year 2020/2021, KRA adopted stakeholder engagement as a key pillar in its business processes with a view of building strong partnerships as foundations for trust, which is key for voluntary tax compliance. This made KRA more approachable and ready to dialogue on issues pertinent to stakeholders. This approach was productive, not only in enhancing good relationships with taxpayers but also in providing new ideas and innovations useful for improving the tax environment and revenue collection. The Authority also collaborated with other agencies including being part of the multi-agency team, which support in sealing revenue loopholes.
Conclusion
The Authorities 8th Corporate Plan targets to collect Kshs. 6.831 trillion by the end of Financial Year 2023/2024. With the support of taxpayers, the projected economic recovery of 6.6 % in 2021, progressive tax policy frameworks, and a robust tax compliance mechanism, KRA is confident that it will achieve this target and enable the country to sustain its economy.
On behalf of the KRA Board of Directors and Staff, I applaud all compliant taxpayers for honouring their tax obligations. Despite the challenges brought about by the COVID-19 pandemic, you still voluntarily paid your taxes and supported the country achieve this great milestone.
Your continuous contribution to Kenya’s economic sustainability will go a long way in ensuring the sovereignty of this great nation.
KRA is determined to make the taxpaying experience better for all its customers. The Authority reiterates its commitment to integrity and professionalism in serving taxpayers. KRA is optimistic that we will perform better in the new financial year.
Tulipe Ushuru, Tujitegemee!
