Kenya raises tax revenue forecast; economists surprised

Kenya has raised its tax revenue forecast for the financial year ending in June 2017 by 8.7 percent as efforts to boost collection start to pay off, officials said.

Economists said the forecast for this fiscal year was slightly too optimistic, saying there was evidence economic growth, estimated at 5.9 percent in 2016, was losing momentum.

The government said on Thursday it expected ordinary tax revenue of Sh1.5 trillion ($14.5 billion), up from its initial projection of 1.38 trillion shillings last June.

Kamau Thugge, principal secretary at the Treasury, told Reuters the upward revision followed better-than-expected collection in the seven months to January.

He said growth in revenues had slowed in the last two fiscal years, but collection problems were now being overcome.

“This trend in the actual collection through January 2017 is being reversed. Indeed we project that in 2016/17, ordinary revenue is poised to grow at an impressive 18.4 percent,” Thugge said.

He said the government’s forecast of a 13 percent jump in revenue collection in the financial year starting in July, to 1.704 trillion shillings, was cautious and in line with average annual revenue growth for the last six years of 14.4 percent.

The Kenya Revenue Authority, the government’s tax agency, has been carrying out reforms to ensure tax compliance and seal loopholes used by tax evaders, officials said.

Kenyans go to the polls on August 8, when President Uhuru Kenyatta is expected to run for a second and final five-year term against his main rival, Raila Odinga.

The International Monetary Fund expects this to weigh on economic growth, as investors take a wait-and-see attitude.

A wave of ethnic violence followed a disputed presidential election in December 2007.

Odinga disputed the outcome of the last vote, in 2013, but the result was upheld by the country’s Supreme Court.

The IMF expects economic growth to slow this year. The central bank has a 2017 growth forecast of 5.7 percent.

Razia Khan, head of research for Africa at Standard Chartered in London, said the higher revenue forecast was unexpected.

“We are surprised by the increase in revenue collection for the current fiscal year, given our expectation (of) some slowing of economic momentum,” she said.