The Parliamentary Budget Office has revealed that the Kenya Revenue Authority could plunge into huge revenue deficits following tax reliefs issued by the government to cushion Kenyans from the COVID-19 pandemic. According to the office, the revenue collection will drop by Ksh122.2 billion between April and June if the tax cuts are adopted. This amount translated to Ksh1.3 billion daily over the next three months.
A huge portion of government revenue expenditure is consumed, civil servants’ salaries, debt payments and allocation to counties. The office warns that if the government revenue starts dropping in billions, handling emergencies arising from COVID-19 will be a challenge and that there will not be enough to channel into development projects like infrastructure.
“National savings are not adequate. As a result, the country is not financially in a position to offer an elaborate stimulus package as other countries have done,” read its report ahead of the debate on Tax Laws (Amendment) Bill 2020.
PBO warns that a distorted tax collection scheme will force the government to borrow more accumulating more public debt which will press hard on citizens who will bear the burden. Already a huge chunk of the revenue for this financial year has been allocated for repayment of recurrent expenditures and public debts.
Of the Ksh122 billion revenue loss, the reduction in VAT from 16% to 14% will be the main death of the revenue basket. Following the government restrictive measures to prevent the spread of the virus, including travel restrictions, social distancing, and mandatory quarantine which have forced a number of businesses to shut down and others to scale down their operations collecting that 14% will be a problem.