Mbadi blames revenue shortfall on KRA's outdated tax systems

National Treasury and Economic Planning Cabinet Secretary John Mbadi has laid bare the challenges facing revenue collection, detailing that some of the taxman’s systems are not working optimally.

The CS, who was speaking during the ongoing Kenya Revenue Authority (KRA) Summit 2024 in Nairobi, yesterday, listed iTax and the iCMS (Integrated Customs Management System), as some of the systems that are either outdated or not working as they should.

While KRA’s revenue collection has been increasing progressively in the last five years, hitting Sh2.4 trillion in the 2023/24 financial year, out of the target of Sh2.5 trillion, the CS noted that there is more potential in the economy citing VAT as one of the areas.

He said these systems are some of the challenges why the taxman is not collecting revenue commensurate to the size of Kenya’s economy.

The iTax is a KRA system that is meant to improve efficiency by allowing taxpayers to register for Personal Identification Numbers (PIN) and file their returns as well.

The iCMS system deals with customs duty, a key platform for importers.

The CS raised questions on the iCMS system saying it is not transparent. He said some of this information was obtained directly from staff from the authority.

“Our system, iCMS is not working. That is the truth. We must have a system that is working. The iTax is outdated. This is the feedback I am getting (from KRA staff). They are saying it is outdated. And we have many more,” said the CS.

He detailed one area that the iCMS system fails saying the amount of cargo getting into the country is not commensurate to the size of the economy. “How come cargo going to the Democratic Republic of Congo is more than Kenya?

How can South Sudan consume more than Kenya, and we are the biggest economy in the region? It is not true. Our systems are not working. We must fix them,” said CS Mbadi.

The CS said all other metrics, like the inflation rate that is now at 3.6 per cent and the stable shilling indicate that the economy is looking up.

This is apart from the interest rate which he noted is likely to drop due to the inflation rate and the Federal Reserve in the US also softening theirs and the public debt that has become a challenge to sustain.

“Our economy is robust. The question we should be asking is, how come we have challenges in an economy that is growing at more than five per cent which is above the average in the region and globally?” he posed. “Where is the problem? The problem is we have not collected the tax that we should.”

He said a new system is being put in place that will ensure every Kenyan pays their fair share of tax, listing PAYE from professional individuals who do consultancy like doctors, lawyers, accountants, and landlords among those targeted.

This will be complemented by Treasury’s medium-term revenue strategy that seeks to reduce corporate tax from 30 per cent to 25 and applying VAT at 14 per cent instead of 16. “It is embarrassing that the level of trade within African countries is minuscule compared to what we do with the rest of the world,” said Prime CS Musalia Mudavadi.

KRA Commissioner General Humphrey Wattanga said the summit is crucial for the authority to navigate the complexities of the economic landscape.