Despite tax increases in Kenya’s 2023/2024 Finance Bill, the Kenya Revenue Authority (KRA) missed its tax collection target by $2.09 billion (KES 267 billion) for the financial year ending June 2024. The shortfall came in the wake of a tough macroeconomic environment marked by a drop in corporate profits and an increase in layoffs.
KRA had set a revenue target of $21.8 billion (KES 2.79 trillion) for the year. However, Corporation Income Tax (CIT), which is paid on profits, grew at a slower rate of 4.9% compared to 7.2% in the previous year, indicating reduced profitability in key sectors of the Kenyan economy, including finance, insurance, ICT, and manufacturing.
The authority also recorded the highest shortfall of $567 million (KES 72.3 billion) in employee collections (pay-as-you-earn), despite introducing a new tax band in 2023 targeting top earners. Manufacturing tax collection saw the largest decline at 13%, followed by ICT at 12.3%, while finance and insurance declined by 2.4%. High operational costs, including energy prices and the weakening of the Kenyan shilling against the dollar, contributed to the economic slowdown.
“Weak demand for manufactured goods affected by high retail prices, which resulted from high input costs (mainly import-driven) and high energy costs,” said Humphrey Wattanga, KRA commissioner-general.
In total, KRA collected $18.8 billion (KES 2.4 trillion) in taxes for the 2023/2024 financial year, an 11.1% increase compared to the previous year, achieving 95.5% of its overall target. The agency saw a strong 34.9% growth in revenue collected for other government programs.
Kenya’s tax revenue performance in 2023/2024 reflects the country’s challenging economic situation. Although the economy grew at a moderate 5.6% in 2023 compared to 4.9% in 2022, inflation remained a challenge early in the year, averaging 6.86% in the first half due to high fuel and energy costs. However, the Central Bank’s monetary policies helped bring inflation down to an average of 4.87% by the fourth quarter, leading to an annual average of 6.22% – a significant improvement from the previous year’s 8.78%.
