Kenya has experienced the slowest growth in collections from value-added tax (VAT) in a decade, attributed to elevated inflation that has reduced salaries and hindered new private-sector investments. The provisional data from the Kenya Revenue Authority (KRA) show that VAT collections increased by 5.23% in the financial year ended June 2023, amounting to Ksh 550.04 billion. This growth rate is significantly lower compared to the previous year, which saw VAT receipts grow by 27.35%.
Experts attribute this sluggish growth to the cost of living crisis, which has eroded earnings and impacted job opportunities. The high inflation rate, averaging 8.78% in the review year, has increased the cost of living, leading to reduced demand for goods and services. As a result, businesses have scaled down operations or relocated, contributing to elevated unemployment rates.
VAT revenue receipts have nearly tripled since the enforcement of the VAT Act in 2013, rising from Ksh 184.92 billion in the financial year ended June 2013 to Ksh 550.04 billion in the year ended June 2023.
The Kenyan government has been focusing on increasing VAT collections through measures such as the rollout of electronic tax registers. However, reduced consumer demand, driven by high inflation and increased costs, has led to reduced output and slowed employment opportunities.
In an effort to curb inflation, the Central Bank of Kenya has raised benchmark interest rates, making borrowing more expensive and potentially causing consumers to cut or postpone expenditures on non-essential goods and services.
Analysts suggest that without stringent fiscal policies to spur economic growth, the pattern of slow VAT growth is likely to continue in the near future.