IMF backs Treasury proposals on tax base

Njuguna Ndung'u

Cabinet Secretary for National Treasury and Economic Planning Prof Njuguna Ndung'u.  

Photo credit: File | Nation Media Group

The International Monetary Fund (IMF) has backed the government’s proposed tax changes in the 2024 Finance Bill despite a public outcry, citing a need to reverse a growing shortfall in the government’s revenue collection.

This backing by one of Kenya’s most influential financiers is likely to strengthen the government’s resolve to push through the Bill that it hopes will generate an additional Sh496 billion in taxes in the 2024/2025 fiscal year.

The government is targeting Sh2.948 trillion in taxes (ordinary revenue) in the 2024/2025 fiscal year, up from a projected Sh2.452 trillion in the current year. In the 10 months to April 2024, the State had raised Sh1.826 trillion in taxes against a pro-rated target of Sh2.094 trillion, indicating a shortfall of Sh267.9 billion.

The IMF said that although the country has successfully refinanced its 2014 Eurobond and brought down inflation and the exchange rate, the revenue shortfall and widening fiscal deficit remain a concern and require “a sizeable and upfront fiscal adjustment in the 2024/25 fiscal year to correct the course.”

The IMF further noted that the government has taken what it termed as decisive steps towards fiscal consolidation by introducing several measures in the draft 2024/25 Budget and the 2024 Finance Bill.

“Importantly, the latter centres on measures to broaden the domestic tax base, through rationalisation of various tax expenditures, in line with recommendations in the Medium-Term Revenue Strategy,” said the IMF in a statement following the conclusion of the seventh review of Kenya’s medium term funding programme.

“Enhancing tax compliance and increasing the efficiency of expenditures through public expenditure and wage bill reforms, State-owned enterprise restructuring, rationalising unproductive current spending, and better targeting of subsidies and transfers while ring-fencing social and development spending will be key to enhancing the credibility of the consolidation strategy in 2024/25 and the medium term.”

So far, Kenya has accessed Sh337.3 billion ($2.6 billion) courtesy of the programme following six reviews of performance-based disbursements.

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