Focus on domestic revenue mobilisation, EAC states told

Funding for countries in the East African region is at a crossroads, as a significant shift in the focus of development partners, gobbling up traditional revenues of funds. During the opening session of the 52nd East African Revenue Authorities Commissioners General meeting, National Treasury and Planning Cabinet Secretary John Mbadi raised an alarm about this trend.

He pointed out that as global attention increasingly turns to conflicts in Eastern Europe and the Middle East, Kenya and other East African nations must adapt their strategies for securing financial support. With ongoing conflicts in Ukraine and escalating tensions in the Middle East, substantial military expenditures are drawing resources that might otherwise support development efforts in Africa.

In 2023, for instance, Russia’s military spending reached an astonishing $109 billion, while Ukraine’s expenditures surged to $64.8 billion, bolstered by significant military aid. The Middle East’s military spending alone hit an alarming $200 billion, with cumulative conflict costs surpassing $11 trillion.

In light of these development, Mbadi stressed the importance of mobilizing domestic resources to reduce dependence on external funding. He said that Kenya must strive for sustainable economic growth by tapping into its own potential.

“We must be authentic. The attention of our traditional partners is shifting away from us,” he said. This shift is particularly concerning given the ongoing conflicts in Ukraine and the Middle East, which have significantly impacted global military spending

For the current fiscal year, Kenya has set a borrowing commitment of $2.7 billion, alongside a domestic borrowing target of $3.2 billion. The International Monetary Fund has also allocated $1.4 billion to Kenya. Currently, the country collects approximately 14.5 percent of its Gross Domestic Product in revenue, but Mbadi believes this could be increased to 22 percent. He said that raising the revenue collection to 17 per cent could yield an additional $3.5 billion, which could cover external borrowing needs and free up funds for other critical areas. “If we get a few things done differently, we will not stress ourselves looking for money elsewhere,” he stated, calling for a proactive approach to financial management.

However, the road to increased domestic revenue is fraught with challenges, particularly corruption, which remains a significant barrier. Corruption erodes trust in tax systems and reduces compliance among taxpayers, making it essential for Kenya and its neighbours to tackle this issue head-on.  Mbadi emphasized that fighting corruption is a prerequisite for effective tax collection and for ensuring that public resources are utilized effectively for development.

“In FY 2023/2024, East African Community economies grew by 5.8 per cent in real terms or 14.5 per cent in nominal terms. However, tax revenue growth was only 13.3 per cent indicating that our tax collection is not keeping pace with economic growth,” the CS said. This, he added, highlights the need to reassess our tax policies and administration of revenue strategies, to broaden the tax base and boost revenue collection.

To combat some of these challenges, the Kenya Revenue Authority (KRA) is rolling out several initiatives aimed at enhancing domestic revenue mobilization.

A key focus is the integration of modern technology into tax collection processes. The introduction of the Electronic Tax Invoice Management System (eTIMS) aims to improve the efficiency of Value Added Tax collection.  Additionally, the KRA is working to integrate tax systems with betting companies to boost Excise Tax and Withholding Tax collections.

KRA’s Revenue Enhancement Initiatives (REI) are designed to address revenue shortfalls through Alternative Dispute Resolution mechanisms and broadening the tax base.