Loss of jobs to automation spells doom for KRA targets

The loss of jobs to automation has spelt doom for the Kenya Revenue Authority (KRA) tax mobilization goal as the country’s economic structure undergoes a seismic shift.

Changing trends in employment creation in recent years has seen tax revenues derived from employee incomes edge towards flat growth, heightening the pressure on KRA to meet revenue targets under growing the State ambitions.

While output in highly grossing industries such as insurance and financial services has been on the rise to keep in tandem with Gross Domestic Product (GDP) growth, the segments have not yielded in additional individual incomes as jobs shift elsewhere.

“Sectors where we traditionally get a lot of revenues are showing weaknesses while on the vice versa, lesser yielding segments have become dominant,” said KRA’s Deputy Commissioner for Innovation and Risk Management Joseline Ogai said.

Agriculture which is by far the least taxed economic segment has continued its rise as the highest yielding industry while segments such as manufacturing have remained on the back foot in delivering both jobs and gross economic output.

According to data tracked from the Kenya National Bureau of Statistics (KNBS) annual published economic surveys, agriculture’s contribution to GDP has risen to 34.2 percent in 2018 from 27.5 percent in 2014.

The manufacturer’s share fell to 7.7 percent from 10 percent across the same period while that of finance and ICT has plateaued at 6.5 and 1.3 percent respectively.

On the employment scorecard, jobs created in the modern sector slacked to a 2.8 percent growth in 2018 while opportunities in the hard to tax informal and self-employment bit surged to nearly 15 million roles across the year against 2.8 million roles for waged employees.

From the resulting decline, growth in KRA revenues from the Pay As You Earn (PAYE) segment have slowed down to 7.9 percent as of 2018 under falling new employee registrations and as an effect of widening tax bands.

Traction

With the decline in income-tax pegged revenues for KRA, the tax man has refocused its outlook to the traction of new tax policies and heightened compliance to existing taxes.

However the switch in tact including the incorporation of the now scrapped presumptive tax on small and medium enterprises (SMEs) has come under the critique of disruption to economic activity.

Even so, the revenue administrator has been insistent on the expansion of the tax base to stem the outflow of government revenues in the long-run.

“The primary reason of netting small tax payers would be to enhance compliance while the entities are still young, avoiding future compliance problems upon maturity of entities,” added Mr. Ogai.

Having subsequently missed its revenue collection target in a dry-spell running well into five consecutive years, KRA is now required to raise a sum of Ksh.1.88 trillion in the current 2019/20 financial year as the government steps up its course for greater domestic revenue mobilization.

New tax measures among them, the near tripling of capital-gains tax, and increased excise taxes on betting, whisky and cigarettes are expected to prop up KRA’s tax base by at least a further Ksh.37 billion.

Some of the measures including the taxation of online business however remains the subject of the setup solid regulations to streamline implementation.

“One of the key challenges is that transactions are not visible. That would call for the amendment of the definition of permanent establishments has businesses now do not necessary have physical offices or locations inside their countries of operation,” said KRA Tax Advisory Deputy Commissioner Caxton Masudi.

The growing demand on KRA by the government sits along Treasury’s ambition of bringing down the budget funding deficit to at most 3 percent in the medium term.