(Nairobi) – The Treasury has announced plans to seek an additional KSh 343 billion in tax revenue in the next financial year, signaling the introduction of new taxes and an intensified push to improve tax compliance. The Kenya Revenue Authority (KRA) will be tasked with collecting KSh 2.732 trillion in total tax revenue, a 14.4% increase from the KSh 2.389 trillion targeted for the current fiscal year.
The revised target, set in the Budget Review and Outlook Paper (BROP), surpasses the KSh 2.659 trillion originally anticipated before the Finance Bill 2024 was withdrawn. The withdrawal came after intense pressure from anti-tax protests, leading President William Ruto to abandon the Bill on June 26, 2024, and later disband his Cabinet. The protests, which included demonstrations across the country, were driven by concerns over new taxes and proposed tax hikes that many feared would worsen the already high cost of living and affect workers’ real wages.
After the Bill was shelved, the government reduced its spending and widened the fiscal deficit, a decision that did not sit well with the International Monetary Fund (IMF). The IMF has urged Kenya to increase tax collections to reduce its borrowing and better manage its public finances.
Looking ahead, the Finance Bill 2025 is expected to draw heavily from the revenue projections outlined in the BROP. This will be crucial in funding the KSh 4.329 trillion budget for the fiscal year starting in July 2025. The BROP revenue outlook indicates a series of strategies to increase taxes, including targeting tax evaders, expanding the tax base, and bringing in more people from the informal sector.
To support these efforts, the government aims to implement a range of reforms, including strengthening tax administration, improving tax compliance, and reducing tax expenditures. A focus will be placed on leveraging technology to streamline tax processes and closing existing loopholes that allow tax evasion. Non-tax revenues from services provided by government agencies are also expected to be increased.
Specific measures outlined in the BROP include an 11.9% increase in income tax revenue, aiming to collect KSh 1.32 trillion, and a 13.3% rise in value-added tax (VAT), bringing in KSh 820.3 billion. Excise duty will be raised by 20% to KSh 389.6 billion, while import duty is expected to rise by 25.8% to KSh 201.3 billion.
Despite these efforts to boost revenue, Kenya’s mounting debt has placed significant pressure on the country’s finances, with more than half of the tax revenue currently being allocated to service the public debt. This leaves little room for investment in essential public projects.
The IMF’s latest review of Kenya’s economy indicates that the Treasury has committed to finding ways to broaden the tax base and improve compliance, while also ensuring that any new tax measures are “socially and politically acceptable.” The government has pledged to carefully assess and, where possible, mitigate any negative effects on the most vulnerable populations.
In a move to address fiscal challenges, the Treasury is reintroducing some of the tax measures initially proposed in the Finance Bill 2024 through the Tax Laws Amendment Bill. This new legislation, which is expected to pass before the close of the financial year in June, will include new taxes on sectors like betting, phone calls, and data, as well as on multinational companies such as Uber.
Another significant measure involves raising the railway development levy from 1.5% to 2.5% of the value of imports. To complement these efforts, the government has ramped up its crackdown on tax cheats, with the Kenya Revenue Authority (KRA) integrating its systems with banks, money remittance firms, and payment service providers like M-Pesa to catch tax evaders and recover billions of shillings.
The Treasury is also focused on expanding the tax base by bringing more small businesses and informal sector workers into the tax system, an area that has historically been difficult to manage.
The government is navigating a delicate balance between meeting the demands of hard-pressed citizens and securing the support of international lenders, such as the IMF, which is urging the government to reduce its fiscal deficit in order to obtain more financing. The Treasury has indicated that it plans to lower the pace of borrowing, reducing the fiscal deficit from KSh 768.6 billion (4.3% of GDP) to KSh 759.4 billion (3.8% of GDP) in the upcoming fiscal year.
Out of the proposed KSh 4.329 trillion budget, KSh 3.077 trillion will be allocated to recurrent spending, while KSh 804.7 billion will be dedicated to development. Counties will receive KSh 442.7 billion of this total.