Nairobi — Devolved units are set to reap heavily from the proposed recommendations for sharing revenue between the National Government and the County government following an increase of Sh22 billion for their allocation in the financial year 2024/2025.
The Commission of Revenue Allocation has recommended that counties should receive an allocation of Sh407 billion from the current allocation which stands at Sh385.4 billion.
From the Sh407 billion allocated to counties, the projected equitable share has been capped at Sh396 billion, the projected equalization fund has been allocated Sh8.37 billion while the projections for the Road Maintenance Levy Fund has been capped Sh11.37 billion.
National Government will receive an allocation of Sh 2.4 trillion which constitutes to an increase of Sh17 billion as the current financial year allocation is Sh2.1 trillion.
In the breakdown presented before the National Assembly Budget and Appropriation Committee chaired by Kiharu MP Ndindi Nyoro the revenue allocation is based on Sh2.8 trillion revenue target in the next financial year.
Shortfalls in revenue allocation will however deal a blow the projections by the Commission on Revenue Allocation with both the National Governments and Counties missing their targets forcing the government to increase the public debt.
In the last financial year, KRA missed its revenue collection target by Sh107 billion in the fiscal year ended June 2022, citing a harsh economic environment.
The taxman collected Sh2.166 trillion with the target which was capped at 2.273 trillion.
For the first quarter of the current financial year, KRA missed its revenue target by Sh79 billion which has been attributed to slow economic growth, low oil imports tax exemptions on food-related items and failure by some government entities to remit pay-as-you-earn (PAYE) contributed.
In the current financial year, the revenue targets for KRA has been set at Sh2.5 billion.
The oil revenue recorded a deficit of Sh12.9 billion and a decline of 8.6 percent over the July-September 2022 collections.
The Finance Act 2023 which introduced a raft of new taxes in a bid to increase tax collections by KRA to reduce the need for borrowing and bridge the budget deficit aimed at helping the taxman achieve the targets and bring more Kenyans into the tax bracket.
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CRA has however issued a warning that KRA might miss its target in the current financial year.
"Yes we are increasing taxes but if we are not careful we might not achieve our revenue target. In the year ending June 2023 we missed our targets hits because most importers have no purchasing power,"
"That's why all the tax levies are going down, we need to find why we missed the targets in the first quarter of this year,"said Director Economic Affairs Linet Oyugi
Embakasi MP Babu Owino questioned why the CRA increased the revenue allocation to the two level of government with the tax institutions failing in their revenue targets especially with the increase in taxes that spell doom to revenue collections.
"I am wondering why we are spending what we don't have. Herbert's law stipulates you cant spend what you don't have. When you increase taxes, you are increasing prices in good and services which reduce demand,therefore going by demanding and supply, there is likely you will not collect enough revenue," said Owino.
According to CRA, the projections are reasonable despite the revenue shortfalls in previous financial year by the Kenya Revenue Authority explaining that borrowing institutions will savage the situation in case of shortfall.
"We want to grow faster that what we can afford even in our own personal lives we spend what we don't have. Lending institutions exists to help you move a little faster in what you intend to achieve,"Oyugi said.
"So as country we want to grow faster but that doesn't mean we acquire what we can pay. We have to acquire that which is sustainable. We have to pursue a balanced budget,"she added.
