Economic Environment
The revenue performance reflects the prevailing economic indicators, especially the projected GDP growth of 5.8 per cent in FY 2022/23 (Budget Policy Statement 2023) compared to a growth of 6.5 per cent in FY 2021/22.
The overall inflation remained above forecast levels averaging 8.78 per cent compared to an average of 6.15 per cent in the FY 2021/2022. This was mainly driven by high fuel, electricity and food prices. The general economic environment was also influenced by the exchange rate of the Kenya Shilling against the dollar, which registered a consistent depreciation.
Trade and Domestic Taxes Performance
During the just-concluded financial year, Domestic Taxes registered a revenue growth of 8.5 per cent after collecting Ksh1.407 trillion against a target of Ksh1.481 trillion. This translates to a performance rate of 95.0 per cent.
Customs taxes recorded a performance rate of 95.6 per cent with a collection of Ksh754.090 Billion. This translates to revenue growth of 3.5 per cent compared to the same period in FY 2021/2022.
Despite overall import values increasing by 15.3 per cent, Customs taxes performance was in part affected by growth in exemptions and remissions, which grew by 39.7 per cent, driven by special exemptions accorded to rice, maize, sugar, and cooking oil. These products account for 24.8 per cent of exemptions accorded in the FY 2022/2023. The special exemptions were part of the government’s strategies to mitigate against adverse effects of drought and to reduce the cost of living.
Performance of Key Tax Heads
Excise on Betting
Excise on Betting registered a stellar performance rate of 116.2 per cent after collecting Ksh6.640 billion against a target of Ksh5.715 billion. Excise on Betting collected a surplus of Ksh925 million and grew by 30.0 per cent compared to the same period in FY 2021/2022. The performance is attributed to the integration of betting companies into the KRA tax system. The integration has streamlined tax remittance from the sector and scaled up revenue collection.
Domestic VAT
Domestic VAT collection stood at Ksh272.452 billion reflecting a growth of 11.3 per cent compared to the previous year. The growth is attributed to the implementation of the Tax Invoice Management System (TIMS), which has enhanced compliance among VAT-registered taxpayers.
Importantly, VAT growth scaled up to 18 per cent in February – June 2023 upon implementation of Tax Invoice Management System (TIMS & eTIMs), from an earlier slower growth of 6.7 per cent in the first 7 months of FY 2022/23. This performance is expected to be sustained in the coming year once the full rollout of eTIMS is realized amongst the VAT-registered taxpayers.
Corporation Tax
Ksh263.819 billion was collected in corporation tax which translates to 94.2 per cent. This was also a growth of 9.0 per cent over the last financial year. This performance was driven by increased remittance from sectors like Finance & Insurance; Information & Communication; Manufacturing; Wholesale & Retail Trade; and Electricity, Oil, & Gas. These sectors contributed 77.8 per cent of the Corporation taxes.
Pay As You Earn (P.A.Y.E)
P.A.Y.E registered a growth of 7.2 per cent after collecting Ksh494.979 billion. The performance was mainly driven by remittance from private firms and the public sector, which grew by 10.7 per cent and 1.9 per cent respectively.
Domestic Excise
The tax head recorded a growth of 2.8 per cent in FY 2022/23, with a collection of Ksh68.124 billion. The performance was attributed to the growth in revenue from Cosmetics (60.6 per cent growth); Wines and Spirits (8.7 per cent growth); Bottled Water (4.4 per cent growth); Soft Drinks (8.0 per cent growth); Beer (0.4 per cent growth); and Tobacco (2.8 per cent growth).
Key Revenue Drivers
The revenue growth is attributed to the implementation of key strategies as enshrined in KRA’s 8th Corporate Plan. Some of these strategies included:
Customer Support Programmes
These programmes were aimed at creating a customer-centric tax environment to enhance voluntary compliance and improve revenue collection. Some of the programmes include Tax education and awareness; Stakeholder engagements and roundtables; Customer visits to appreciate compliant taxpayers; among others. KRA is also re-branding to Kenya Revenue Service (KRS) with an aim of transforming customer relations, simplifying taxpayer services and efficient engagements with stakeholders.
Tax Base Expansion
This aimed at onboarding taxpayers previously not paying taxes. The program enabled KRA to collect Ksh14.649 billion in revenue. Some of the initiatives under the TBE included the recruitment of landlords under the Monthly Rental Income (MRI) obligation and Block Management System (BMS) to map out potential taxpayers.
Through the programme, KRA recruited 940,483 additional active taxpayers in the period under review.
Taxation of Digital Economy
Digital Service Tax and VAT on Digital Market Supply brought inclusivity in the payment of taxes, especially from Non-residents. KRA collected a total of Ksh5.328 billion from these tax heads, translating to a growth of 207.9 per cent compared to the same period in the financial year 2021/2022.
Tax at Source
This programme allowed KRA to collect information and revenue directly at the source of income on a real-time basis and included;
- Electronic Tax Invoice Management System (eTIMS) which minimised VAT fraud and increased tax revenue. A total of 95,732 VAT-registered taxpayers were onboarded which led to remittances of Ksh272. 365 billion. The revenue performance outlook is expected to improve further upon enhanced uptake of eTIMS. In addition, eTIMS is also expected to achieve simplified return filing through prepopulated VAT returns.
- Integration of betting and gaming companies into KRA tax system. The integration gave KRA real-time access to all companies in the gaming and betting sector. This enabled KRA to collect Ksh15.190 Billion in Excise Duty and Withholding Tax from 28 taxpayers that have been on-boarded.
Debt collection initiatives
KRA enhanced collection from debt programmes on non-compliant taxpayers, netting a total of Ksh99.272 billion in FY 2022/2023. This performance was attributable to follow-ups on demand notices and the debt instalment plans agreed upon with taxpayers, which netted Ksh64.681 billion and follow-ups of agency notices, which enabled KRA to collect Ksh34.591 billion, among others.
Dispute resolution framework
The framework enhanced revenue collection from Litigation, Alternative Dispute Resolution (ADR) and Tax Appeals Tribunal (TAT). This enabled KRA to collect Ksh 71.836 billion from 7,458 concluded cases.
Technology
KRA continued to leverage technology to simplify tax processes and facilitate trade. KRA aspires to implement a best-in-class technology platform to drive revenue mobilization by transforming into a highly digitalized revenue administration in facilitating ease of tax compliance and trade. Going into the future strategies will include.
- Integration with e-Citizen, IFMIS, other Government Agencies (regulatory authorities, National Addressing System), and private entities for payroll taxes. This will ensure simplified tax processes for all taxpayers including MSMEs (Integrated POS solution, Tax Software, USSD, etc).
- Completion of eTIMS rollout with Customer Resolution Management capabilities, and provision of pre-population of VAT Returns on sales/purchases, imports/exports, for consumption taxes. The ultimate target is to implement a comprehensive E-Invoicing system.
- Simplification of Customs payment process through inclusion in M-Service, and implementation of intelligent Risk management system, through use of modern technology (AI, Machine learning etc.) in image analysis.
KRA targets to collect Ksh2.768 Trillion by the end of the Financial Year 2023/2024 and surpass the Ksh3 Trillion mark by the Financial Year 2024/2025.
The taxman expressed confidence that it will achieve this target and enable the government to finance its Bottom-Up Economic Transformation Agenda (BETA) and sustain the country’s economy.
In order to achieve this, KRA will be implementing both tax administrative measures and tax policy reforms. KRA will also implement the National Tax Policy and the Medium-Term Revenue Strategy (MTRS) for the period FY 2023/24 – 2026/27. KRA will also develop and implement its 9th Strategic Plan after the end of the 8th Corporate Plan cycle in 2023/24.
Despite the challenging economic environment, taxpayers exhibited resilience and voluntarily paid their taxes to support the country’s economic transformation.
“On behalf of the KRA Board of Directors and Staff, I appreciate all compliant taxpayers for honouring their tax obligations and their contribution towards furthering Kenya’s economic sustainability through registration, filing, accurate reporting and paying their fair share of taxes.
“KRA endeavours to be friendlier and make taxpaying a pleasant experience. KRA further reiterates its commitment to upholding integrity and professionalism in serving taxpayers,” Acting KRA Commissioner General Rispah Simiyu stated.
