State cuts down budget after revenue collection shortfall

The government has been forced to cut down its budget for the current financial year by about Sh184 billion after it failed to meet its revenue collection projections.

The 2019 budget review and outlook paper from the National Treasury shows the government has scaled down the budget from Sh3.02 trillion announced by the then National Treasury Cabinet secretary Henry Rotich in June to Sh2.83 trillion as prospects of raising the revenues to finance the budget dwindled. 

Once the new budget is approved by the MPs, Sh1.74 trillion will be spent on recurrent expenditures representing 16.9 per cent of the Gross Domestic Product (GDP) while Sh707.4 billion will be spent on development expenditures representing 6.8 per cent of the GDP. According to the Treasury, the decision to scale down the budget has also been triggered by financial challenges for the 2018/19 financial years as they recorded a shortfall of Sh123 billion.  

Revised projections

“In light of these challenges, the revenue projections for the financial year 2019/20 have been revised taking into account lower projection base on account of the Sh123 billion shortfall in financial year 2018/19 and revenue performance by end of August 2019,” the report tabled in the National Assembly reads in part.

In addition, the Treasury said the reduction is to enable them to accommodate the weak revenue performance through trade-offs and re-allocations of the existing budgetary provisions and additional expenditure on productive areas of spending across the government.

Areas that have led to the reduction include tax revenues which were below the revised targets with income tax comprising Pay as You Earn (PAYE) and other income tax recording the highest shortfall of Sh56.8 billion attributed to under performance in other income tax due to delayed enactment of Finance Act 2018.

The introduction of the anti-adulteration levy that was effected as annual kerosene volumes that dropped by over 60 per cent which was higher than the envisaged 20 per cent is also another area that negatively affected collection of revenue as well as the overall excise duty.

On the other hand, Value Added Tax (VAT) shortfall recorded of Sh12.3 billion against the supplementary estimates and the spirited fight against substandard and counterfeit goods in the first quarter of the year also depressed the performance and also contributed to the shortfall.

Adds the report: “During the financial year 2018/19  the government received investment income in form of dividends, surplus funds and directors fees of Sh24.6 billion against the revised target of Sh36.7 billion resulting in a negative variance of Sh12.1 billion.

However, the transfers to the county governments in equitable and conditional grants will not be changed as they will remain the same at Sh378.4 billion or 3.7 per cent of the GDP.

Fiscal deficit

But despite the adjustment, the fiscal deficit is expected to increase by Sh5.2 billion from Sh635 billion representing 6.2 per cent of GDP as approved in June by the MPs which will be plugged through external borrowing of Sh331.3 billion out of which Sh305.7 billion is in respect to domestic borrowing and Sh3.2 billion through appropriations in aid.

The new move comes just days after Treasury Cabinet secretary Ukur Yattani issued a circular to all the arms of government informing them of budget cuts due to shortfall in revenue collection.

Following the proposal, already the Judiciary is feeling the heat after its budgetary allocation was slashed. The move has seen Chief Registrar of Judiciary Anne Amadi suspending all mobile court sessions and service weeks’ programmes planned between this month and the end of the year until the budget issue is addressed.  

Parliament has already told the Treasury to stop introducing budget cuts that have not been approved by members.