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Consumption taxes growth declines to eight-year low


Data from the Kenya National Bureau of Statistics shows tax collections from products grew by a paltry 2.8 percent in the third quarter ended September 2023.

Growth in consumption taxes has slumped to the lowest level in eight years, revealing the effect of contained spending amidst inflationary pressures and higher taxation.

Data from the Kenya National Bureau of Statistics (KNBS) shows tax collections from products grew by a paltry 2.8 percent in the third quarter ended September 2023, the lowest expansion since a comparable quarter in 2015.

The only other recent period when KNBS reported a much slower growth was in 2020, at the height of the Covid-19 pandemic economic slowdown.

KNBS describes taxes on products as taxes payable per unit of goods and services produced, including value added tax (VAT), excise duty on airtime, taxes on beverages and tobacco and taxes on petroleum products.

The Kenya Revenue Authority collected Sh217.3 billion consumption taxes during the latest review period, up from Sh211.3 billion a year earlier.

The slowdown is collaborated by data from the National Treasury which shows tax collections for the first quarter of the 2023/24 financial year increased at the slowest pace since 2018,  with exception for the pandemic year.

Total receipts in the period rose by 10.5 percent to Sh514.26 billion compared to a growth of 11.6 percent a year earlier. This was despite new revenue raising measures.

The consumption of petroleum products has, for instance, declined following the enactment of the 2023 Finance Act which standardised the rate of VAT on the products at 16 percent from eight percent previously.

The contraction in consumption contributed to the deceleration in growth for the transportation and storage services sector at 2.8 percent in the quarter from 5.1 percent previously.

“Consumption of light diesel, a key input to land transportation, decreased by 2.3 percent to stand at 557,600 thousand metric tonnes in the third quarter of 2023,” KNBS added.

The dip in the consumption of light diesel dampened the collection of taxes including VAT and excise duty which are usually levied on petroleum products.

Data from the Stanbic Bank Purchasing Managers Index (PMI) reveals further pressures on consumption and demand, pointing to further growth deceleration and lower collection of consumption taxes.

November PMI report shows rapid inflationary pressures on businesses and customers resulted in sustained contractions in activity and new business.

Consumer spending fell due to increased prices and cash flow challenges while firms marked reductions in output and new orders.

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