The Treasury will be seeking additional Sh343 billion in tax revenue in the next financial year, signalling additional taxes that could raise the risk of a fresh round of social unrest.
The Kenya Revenue Authority (KRA) will be required to collect Sh2.732 trillion as tax revenue, according to Treasury projections, being 14.4 percent or Sh343 billion more than the Sh2.389 trillion targeted in the current financial year.
The latest target, set in the budget review and outlook paper (BROP), is more than the Sh2.659 trillion that the government initially eyed before the withdrawal of the Finance Bill, 2024 that has left the Treasury in a financial strain.
President William Ruto abandoned the Finance Bill for this fiscal year on June 26, and later disbanded his Cabinet, bowing to pressure from anti-tax protesters who had stormed Parliament amid demonstrations across the country.
The Bill proposed new taxes and tax hikes to raise an extra Sh346 billion--levies that the protesters fretted would hit workers struggling with surging living costs and negative real wages.
After the Bill was dropped, the government cut spending and widened the fiscal deficit to the discomfort of the International Monetary Fund (IMF)—which is pushing Kenya to increase tax collections in an effort to reduce borrowing.
The Finance Bill 2025 is expected to borrow from the BROP, barring any changes ahead of the tabling of the proposed law in April to fund the Sh4.329 trillion budget for the new fiscal year starting July.
The BROP revenue outlook signals introduction of new taxes, an aggressive pursuit of tax evaders and cheats and roping in of traders and workers in the informal sector.
“To boost revenues, the government will continue to implement the medium-term revenue strategy for the FY 2024/25 – 2026/27; strengthen tax administration for enhanced compliance through expansion of the tax base, minimising tax expenditures, leveraging on technology to revolutionise tax processes, sealing revenue loopholes and enhancing the efficiency of tax system; and, focus on non-tax revenues that Ministries, Departments and Agencies can raise through the services they offer to the public,” says the Treasury in the BROP.
According to the projections, the Treasury wants to increase income tax by 11.9 percent to Sh1.32 trillion and value added tax by 13.3 percent to Sh820.3 billion.
It wants to increase excise duty by a fifth to Sh389.6 billion and import duty by 25.8 percent to Sh201.3 billion.
Kenya’ mounting debts have seen it commit more than half of taxes annually to repaying the public debt, leaving little cash for projects.
IMF latest review on Kenya shows Treasury has promised the Bretton Wood institution that it will find a way of bringing more Kenyans into the tax bracket and enforcing compliance while ensuring such moves are “socially and politically acceptable.”
“Accordingly, we are committed to introduce measures that widen the tax base, carefully assessing and where possible offsetting unintended distributional effects to ensure equity and progressivity,” said Treasury.
The Treasury is bringing back some tax measures that it scrapped after deadly protests in June through the Tax Laws Amendments Bill tabled this month.
The Bill will see a slew of high taxes on betting, phone calls and data before the close of the financial year in June.
The new taxes include some targeted at multinational, taxi hailing firms like Uber.
The Treasury is also seeking to raise the railway development levy to 2.5 percent from current 1.5 percent of import value.
To shore up revenue, Kenya has deepened its crackdown on tax cheats and it is expected to be more aggressive following withdrawal of the finance bill, which contained a slew of tax hikes.
The KRA has also started integrating its system with banks, money remittance firms and payment service providers like M-Pesa in fresh efforts to weed out tax evaders and boost revenue by billions of shillings.
It is also seeking to expand the tax base and rope in more small businesses and the informal sector to raise additional revenues.
The government has been caught between the competing demands of hard-pressed citizens and lenders such as the IMF, which is urging the government to cut deficits to obtain more financing.
The Treasury plans to dial down on the pace of borrowing to cut the fiscal deficit from Sh768.6 billion or 4.3 percent of gross domestic product (GDP) to Sh759.4 billion or 3.8 percent of GDP in the new fiscal year.
Out of the Sh4.3329 trillion budget, Sh3.077 trillion will go to recurrent spending while development will consume Sh804.7 billion as counties receive Sh442.7 billion.
