The Institute of Public Finance (IPF) says missed revenue targets this year and in the medium term could lead to spending cuts on sectors crucial for poverty reduction and economic development.
In its Macro Fiscal Analytic Snapshot report published Monday, the public finance think tank said the consistent revenue underperformance over the last five years indicates that the government might not manage to increase its income to 19 percent of gross domestic product (GDP) by 2025/26 financial year as expected.
This will lead to spending cuts, specifically a drop in development expenditure, which is already lower than needed, causing stagnation in economic development and poverty reduction, the lobby warns.
“The need to keep the deficit down during a period of heightened debt vulnerability means that if revenue comes in below target, the projected increases in expenditure may not be possible, with development spending likely to be the main casualty,” the experts said in the report.
Kenya’s revenue target for the first quarter of this financial year was missed by about 12 percent, “raising some questions over the effectiveness of the tax measures and which may threaten the government’s plan to run a primary surplus in this fiscal year and beyond,” the lobby said.
In the first five months of the current financial year, Kenya Revenue Authority (KRA) collected Sh963 billion, about 37 percent of the expected Sh2.5 trillion targeted by the end of June this year. Last year, KRA missed the revenue targets by over Sh107 billion.
According to the experts, general government spending on health, education, and social protection, which are crucial for poverty reduction and economic development, have traditionally been low and could reduce further if the State does not meet revenue targets.
Spending on agriculture and water, sanitation and hygiene sectors has also remained below recommended levels and could be cut further amid revenue shortfalls in the coming years.
The experts recommend that to grow tax revenue, the government should reduce the number and scope of tax exemptions, which cost the country approximately 2.9 percent of GDP in forgone taxes in 2022.
They also suggest that county governments should ramp up their revenue collection efforts to reduce overreliance on the national government, which makes them susceptible to revenue problems at the national level.
