Dwindling revenues, COVID-19 disruptions portend more borrowing – expert » Capital News

NAIROBI, Kenya, Jun 11- While the country awaits budget reading by Treasury Cabinet Secretary Ukuru Yatani, experts say that the current tax collection projections are overambitious amid  the prevailing tough economic conditions necessitated by the COVID-19 pandemic.

Yatani  is expected to present the 2020/2021 budget which is expected to set the momentum for country’s economy amid the tough coronavirus pandemic which slowed economic growth with the tourism, hotel and aviation sectors being among the hardest hit.

The Treasury projects to collect at least Sh1.9 trillion including Sh1.6 trillion of the ordinary revenue which includes tax collections, investment incomes among other revenues collected by Kenya Revenue Authority.

The figures projected under the 2020 Budget Policy Statement were adjusted down from an initial revenue target of Sh2.1 trillion.

In an interview with Capital Business, Genghis Capital Senior Analysyst Churchill Ogutu raised concern that the projections are unrealistic under the COVID-19 environment which has been characterized by reduced income, disrupted business and job losses, factors which are expected to disrupt government’s revenue streams.

“Treasury has tried to reduce the revenue estimates but that being case, that is on higher side, we still don’t know the severity of the duration of COVID-19 which has hurt the economy and constrained government revenue streams,” he said during an interview on Thursday.

The pandemic has reduced the consumption rate which has had a negative effect on excise duty, Value Added Tax and import duty revenue streams. Disrupted business environment has also impacted the corporate income tax while Income tax/reduced employment income has sabotaged Pay As You Earn stream.

Under the Tax Laws (Amendment) Bill, (2020), the Value Added Tax rate was lowered from 16 to 14 per cent, the  Corporation Tax was revised to 25 per cent while Non-Resident Tax on Dividends has been adjusted from 10 to 15 per cent.

He projected the use of supplementary budget to reduce the budget deficit which will also likely to extend beyond the projected 7.3 per cent of the country’s gross domestic product in the coming financial year.

“The current revenue estimates is on higher side and at one point, there will be a supplementary budget to reduce it to a more realistic target,” Ogutu added.

The estimated 7.3 per cent budget deficit is revision from the initial projection of 6.2 per cent which was also revised from the initial target of 5.6 per cent during the budget reading last year.