The Kenya Revenue Authority (KRA) expects a slower growth in the number of new taxpayers it targets to recruit in the current financial year ending June 2025 after its strategy was derailed by the collapse of the Finance Bill, 2024.
The taxman has set a goal of growing active taxpayers —persons and companies who file and/or pay taxes— to 9.870 million from 9.669 million in the year ended June 2024.
This is equivalent to an additional 201,000 active persons and firms whom it projects to rope into the tax net in the first year of implementing its five-year corporate plan running through June2029.
The targeted growth is the lowest in the KRA’s recent history and would represent a significant 86.74 percent drop from additional 1.516 million active taxpayers last financial year.
“The formulation of this Ninth Corporate Plan was informed by the need to meet the government resource requirements amidst rising government expenditure and debt repayments. Therefore, this plan aims at narrowing the resource gap by implementing tax base expansion strategies and tapping into new unexplored revenue streams across all sectors of the economy, ensuring fair contribution by all,” KRA chairman Antony Mwaura wrote in the corporate plan.
The KRA’s strategy on expanding the tax base in the five-year plan is focused on informal and digital sectors, which have been hard to tax in the past.
However, new tax measures aimed at enhancing compliance in the digital marketplace suffered a major blow after President William Ruto was in late June forced to drop the tax bill following weeks of deadly youth-led protests.
For instance, the plan targeting persons engaged in ride-hailing services, online freelance jobs and food delivery companies collapsed as was a proposal to introduce significant economic presence tax for non-resident persons making money in Kenya through an online platform to replace digital tax service. Some of the proposals are, however, being reinstated through amendments to various tax laws.
The KRA, which has largely underperformed tax collections targets in recent years, has set sights on growing the number of active taxpayers by an average of 800,000 annually in the next four years starting July 2025 through June 2029.
Under the plan, the agency says it will grow active taxpayers by “expanding the type or level of income or assets that are subject to taxation not previously included in the tax system”.
This would include “recruiting new taxpayers, introducing new taxes, subjecting persons and entities to tax that were previously exempt and addition of new obligations to the taxpayers already in the system”.
The KRA has over the years come under fire from business lobbies such as the Kenya Association of Manufacturers and the Kenya National Chamber of Commerce and Industry for overburdening a few persons in the formal sector with taxes, while the majority of the population remain outside the tax bracket.
Upon taking power in September 2022, Dr Ruto directed the taxman to be friendlier and more efficient in a bid to enhance compliance levels and “collect every shilling due”.
“A huge obstacle to the realisation of our national revenue target is that in practice tax administration has traditionally been a repressive, menacing affair which resembles extortion,” the President said.
“This extinguishes taxpayer incentive and diminishes the prospect of an expanded tax base, pulling Kenyan backwards from its national revenue potential and denying its citizens critical services and development programmes.”
The fall of the Finance Bill 2024, which targeted an estimated Sh344.3 billion in new revenue, has exacerbated cash flow challenges for the government, with funding for 47 counties and priority payments to retirees amongst areas hardest hit.
Amidst renewed pressure from the International Monetary Fund (IMF) following the release of the Sh78.3 billion ($606.1 million) tranche last week, Treasury Cabinet Secretary John Mbadi is seeking to reintroduce some of the tax measures which were dropped.
Mr Mbadi, who as opposition MP was a vocal critic of the Finance Bill before he was appointed to the Cabinet in August, says the fresh tax proposals are a result of public views that the Treasury invited on September 17.
The Treasury says it received 35 submissions from the public, civil society, professional bodies, private sector, religious organisations and other stakeholders.
The cost of internet, calls and gambling is expected to rise as the Treasury proposes amendments to excise tax laws in an effort to raise more money. The Treasury has proposed to raise excise duty on internet and phone calls to 20 per cent from the current 15, setting the stage for an upward revision of prices telcos charge for these services.
