Kenyans will have to wait for revenue collection to improve and the reduction in the public debt burden before they can enjoy lower tax rates proposed by the Cabinet Secretary for National Treasury John Mbadi.
Mr Mbadi revealed that the government plans to reduce the value added tax (VAT) on goods and services to 14 percent from 16 percent, a major relief for businesses and households hit by the high cost of living.
He added that in the medium-term Kenya would reduce corporate tax to 25 percent from 30 percent.
The tax cuts, however, are hinged on increased collections by the Kenya Revenue Authority (KRA) and easing of the debt burden, which stands at above the optimum level recommended by the World Bank and the International Monetary Fund (IMF), after years of borrowing driven by infrastructure development.
President William Ruto scrapped tax increases worth more than Sh346 billion in June after protests that killed more than 50 people forced the government to withdraw the Finance Bill.
The move left the heavily indebted government with a wider budget deficit for this financial year, mounting pending bills and a delay in funding from the IMF.
“That (the cuts) are medium projections…like three years and can only happen once we are done with our fiscal consolidation,” said Mr Mbadi in a text message.
Fiscal consolidation refers to the policies undertaken by governments to reduce their budget deficits and the accumulation of debt, which is consuming more than half of taxes annually in service costs.
“We will only implement the cuts after we are successful in improving tax collection efficiency,” he said about sealing revenue leaks, widening the tax base and lowering of tax refunds and exemptions.
A reduction in VAT rates would bring down the cost of electricity, fuel, alcohol, airtime, air tickets, and fertilisers.
The government collected Sh645.49 billion from VAT in the financial year ending June this year, an increase of 17.3 percent from Sh550.43 billion collected in the previous period.
Mr Mbadi also announced plans to cut corporate income tax, an incentive for businesses that want to set up in the country.
“In the medium-term, we want to reduce tax rates. We are not thinking of increasing tax rates,” said the CS when he launched the budget-making process on Monday for the fiscal year starting July next year.
The Treasury will seek suggestions from the public on new legislation to boost revenue and tackle other challenges, hoping the input of the citizens will avoid a repeat of year's protests over the Finance Bill.
"I will be issuing a circular tomorrow, inviting the public's participation to submit proposals on some legislative reforms to improve our current economic situation," Mr Mbadi said.
Kenyans will have until September 20 to submit their views.
