The Executive Directors from the International Monetary Fund (IMF) have urged Kenya to urgently implement tax reforms announced by the Treasury, particularly those outlined in the Medium-Term Revenue Strategy (MTRS) covering the financial year 2024/25 to 2026/27. ‘
Expressing concerns about recent tax collection shortfalls, the IMF directors emphasized the need for immediate corrective measures.
The MTRS, introduced in September 2023 by Treasury Cabinet Secretary Njuguna Ndung’u, proposes a new tax policy for Kenya.
It includes various tax measures such as the introduction of wealth tax, minimum tax, increased Value Added Tax (VAT) on select products, and VAT on education and insurance services. Additionally, new taxes like carbon tax, surcharge tax, and motor vehicle circulation tax are part of the strategy.
The IMF also commended Kenya for recent monetary policy tightening implemented by President William Ruto.
They positively noted efforts to enhance the effectiveness of the monetary policy framework and the efficient functioning of financial markets. However, the IMF warned Kenya about the expected increase in inflation in the first half of 2024, attributed to the volatility in global oil prices and the exchange rate.
As part of the MTRS, Kenya aims to boost tax revenues and increase the revenue-to-GDP ratio from 13.5% to 20%, aligning with the East Africa Community target. The strategy involves introducing new taxes while reducing others.
Treasury CS Ndung’u proposed reducing corporate income tax, phasing out preferential corporate tax, reviewing Pay As You Earn (PAYE), and reviewing exercise duty on betting and gaming taxes. The CS also suggested increasing taxes on alcoholic products, tobacco, and non-alcoholic beverages.
“The MTRS provides a framework for tax reforms aimed at boosting domestic revenue, which has been declining over time,” stated CS Ndung’u. The IMF directors also called on Kenya to proactively manage fiscal risks, including financial bills, and encouraged the strengthening of debt management capacity.
