The National Treasury is betting on higher value-added-tax(VAT) collections from July 1, on a wider coverage of goods and services, to deliver the haul of Sh2.75 trillion in taxes to fund the 2024/25 budget.
According to exchequer estimates of revenue, grants, and loans for the period, collections from value-added tax (VAT) are expected to rise by Sh157.4 billion to Sh812.2 billion from the present estimate of Sh654.7 billion.
VAT collections are expected to amount to just under one-third of total taxes for the year to June 2025 or 29.4 percent.
In contrast, excise taxes are expected to rise by Sh139.8 billion to Sh434.1 billion from Sh294.2 billion while taxes on financial and capital transactions are tabulated at Sh27.9 billion.
Custom and import duties are, meanwhile, expected to deliver Sh187.4 billion in taxes while other levies on international trade are set to yield Sh58.1 billion.
VAT proposals have subsequently formed the core part of government revenue-raising measures for the new financial year and into the medium term.
In last weekâs budget statement, Treasury Cabinet Secretary Njuguna Ndung'u outlined plans to overhaul the list of goods and services, qualifying for VAT exemption and zero-rating.
This is targeted at curbing the erosion of the VAT base from the over Sh248 billion in VAT tax expenditure recorded as of 2022.
âI propose the rationalisation of the VAT tax expenditures as provided in the VAT Act in the form of exemptions and zero-rating based on criteria including- all finished goods currently exempt be subjected to VAT and zero-rated finished goods and services be exempt from VAT while zero-rating is restricted to goods and taxable services meant for export,â Prof Ndungu said.
The rationalisation exercise is expected to expand the VAT tax base and create fairness in taxation.
Among items to fall off the zero-rated list into the vatable category is the supply of ordinary bread in a move expected to result in higher prices for the commodity by at least Sh10 for a 400-gram loaf as per proposals contained in the 2024 Finance Bill.
Financial and insurance services including the issuance of credit and debit cards, telegraphic money transfer services, foreign exchange transactions, and actuarial services are also expected to fall under the ambit of VAT.
