Kenya Misses Tax Target by $2 Billion Despite Tax Hikes

What is worse than falling short of $2.09 billion in taxes? Answer: Rising inflation sweeping the country in all sectors.

3 Min Read

Despite the tax hikes introduced in Kenya’s 2023/2024 Finance Bill, the Kenya Revenue Authority (KRA) fell short of its tax collection target by $2.09 billion (KES 267 billion) for the financial year ending on June 2024.

This shortfall occurred in a challenging macroeconomic environment marked by declining corporate profits and rising layoffs.

According to a report, the KRA’s revenue target for the year is $21.8 billion (KES 2.79 trillion), which is currently under review.

The current state of the Kenyan finance, insurance, ICT, and manufacturing sectors indicates a reduction in profitability compared to the previous year. Corporate Income Tax (CIT), which is paid by profits, grew at a slower rate of 4.9% compared to 7.2% recorded on June 2023.

Also, the Kenya Revenue Authority (KRA) experienced its largest shortfall in employee collections, missing the target by $567 million (KES 72.3 billion) despite introducing a new tax band in 2023 aimed at top earners.

Manufacturing tax collection saw the biggest drop at 13%, followed by ICT at 12.3%, while finance and insurance declined by 2.4%. High operational costs, including rising energy prices and the weakening of the Kenyan shilling against the dollar, contributed to this economic slowdown.

Weak demands for manufactured goods affected by retail prices that was a result of the high cost of inputs (mainly import driven), and high energy costs.

Humphrey Wattanga, KRA Commissioner-General

According to the KRA, the agency collected $18.8 billion (KES 2.4 trillion) in taxes for the 2023/2024 financial year, an 11.1% increase compared to the previous year. Although the agency fell short of its overall target, reaching 95.5%. The KRA saw a 34.9% increase in revenue collected from other government programs.

The country’s 2023/2024 tax revenue performance reflects its challenging economic situation. Despite Kenya’s economy growing by 5.6% in 2023, inflation was averaging 6.86% because of high fuel and energy costs, and this was the first half of the year.

The Kenyan Central Bank once again updated its monetary policies later that year. These new monetary policies enabled the country to bring down inflation to an annual average of 6.22%.

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