Growth in consumption taxes lagged behind overall government revenue collection in the first three months of the financial year, indicating the economic recovery is yet to translate into increased personal incomes that can boost spending. In results released this month, the Kenya Revenue Authority (KRA) reported an overall 13.2 per cent increase in revenue collection between comparative months of July and September 2010, but Value Added Tax- which is used as a proxy for measuring consumption patterns in the economy- grew at a slower pace of 2.5 per cent.KRA said in a statement that the Sh16.4 billion overall growth in revenues to Sh140.4 billion in the first quarter of the year was powered by improved performance in agriculture, construction, manufacturing and financial sectors of the economy.
As an Economic expert, the subdued growth in VAT collection, which increased by a paltry Sh500 million to Sh20.9 billion, means that current GDP growth is mainly being driven by government expenditure, and is yet to translate into increased household incomes, in other words the slow growth of one could only mean that it is compensated by the other. “It could be an indication that growth is not trickling down, or that VATs are not being paid,”
The KRA revenue collection report did not indicate if the tax man is on course to meeting this year’s total annual collection target of Sh610 billion.
While the first quarter results point to the target being missed by 8.3 per cent, this straight line deduction has pitfalls in that some quarters are more significant than others depending on the business cycle of tax payers. Heavy government spending in infrastructure and construction projects across the country are so far providing the single biggest boost to overall economic growth. The weather has also been conducive and agriculture is recovering, pointing to the heavy weighting of the sector, which accounts for a fifth of Kenya’s total GDP.
Improved weather conditions significantly changed the fortunes of the key agricultural sector that employs more than 60 per cent of Kenya’s workforce and lowered the cost of food, estimated to take up 60 per cent of poor household incomes.
Latest economic growth figures by the bureau of statistics put construction as the fastest growing sector of the economy, having expanded by 18 per cent between April and June.
The sector has recorded a huge jump in uptake of loans, where the CBK says net lending grew from Sh43.3 billion to Sh81.7 billion in the year to June, faster than household lending that rose from Sh84.3 billion to Sh118 billion.
Financial intermediation was the second fastest growth sector, enlarging by 16 per cent while the electricity and water sector grew by 14.4 per cent.
Tax collection on petroleum dropped by 5.5 per cent compared to the three months between July and September last year, in a possible indication of reduced consumption of oil for power generation relative to last year.Trade taxes, which mainly comprise of collections from business licenses, recorded the biggest growth of 25.5 per cent indicating that Kenyans could be opening up new businesses hoping to profit from the ongoing economic recovery.
International trade indicators showed marked improvement in the first half of 2010, with volume of merchandise trade increasing by 16.8 per cent as per the bureau of statistics figures.Direct domestic taxes and revenues from fees and licenses increased by 16.3 per cent and nine per cent respectively.
Kenya’s economy grew at the rate of 5.4 per cent in the second quarter of the year, in what the bureau of statistics attributed to a recovery from internal and external shocks that have pulled back growth since 2008.The second quarter growth was realized in an environment of relatively low interest rates, lower inflation and increased production of cheaper hydro-electricity that kept the cost of borrowing in check and eased the pressure on household budgets.
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