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President William Ruto has revealed a significant plan to raise Kenya’s tax revenue from the current 14% to 22%, a move aimed at bolstering the nation’s financial health and reducing dependence on external borrowing.

Speaking to Harvard Business School’s Class of 2025 at State House on May 15, President Ruto detailed a phased approach to achieve this target, starting with an increase to 16% within the year and gradually reaching 20% to 22% during his term.

“My drive is to push Kenya, possibly this year we will be at 16% from 14%. I want in my term, God willing, to leave it at between 20% and 22%. It’s going to be difficult, I have a lot of explaining to do, people will complain but I know finally they will appreciate that the money we go to borrow from the World Bank is savings from other countries,” Ruto stated.

Emphasis on Fiscal Discipline

Since taking office, Ruto has emphasized fiscal discipline, urging the country to live within its means. He highlighted the need to cut spending and boost tax revenue to avoid bankruptcy and reduce reliance on international loans.

“When I came into office, I told everybody to tighten up your belts… I’m not going to preside over a bankrupt country… We have to cut our spending. And there is no free lunch,” he declared.

Comparative Analysis

Ruto pointed out that Kenya’s tax revenue as a percentage of total earnings is significantly lower compared to other African nations, which average between 22% and 25%. He stressed that increasing the tax revenue is essential for Kenya’s economic stability.

“Our peers in the continent are on an average of between 22 and 25 per cent, which means our taxes are way below those of our peers,” he explained. “I know finally they will appreciate that the money we go to borrow from the World Bank is savings from other countries.”

Finance Bill 2024: Proposed Changes

This announcement aligns with the recent introduction of the Finance Bill 2024 by Treasury Cabinet Secretary Njuguna Ndung’u on May 13. The bill proposes significant changes to tax laws, including the Income Tax Act, VAT regulations, and Excise Duty policies. Notably, it suggests increasing excise duty on fees for money transfer services and imposing a 16% VAT on previously zero-rated items like ordinary bread, which could lead to higher consumer costs.

Public Consultation

The National Assembly Committee on Finance has invited Kenyan citizens to share their views on the new bill, emphasizing the importance of public participation in shaping fiscal policies. These proposed changes aim to broaden the tax base and enhance revenue collection, supporting President Ruto’s vision of a financially self-reliant Kenya.

“And I’m not comparing ourselves with OECD countries. Countries like France are at 45 per cent, others are higher. So I persuaded and made a case to the people of Kenya that we must begin to enhance our revenue because if we are a serious state we must be able to enhance our taxes,” Ruto concluded.

Moving Forward

As Kenya prepares for these substantial fiscal reforms, the government remains focused on creating a stable and robust economic environment, essential for sustainable development and growth.

Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

16th May, 2024

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