The government is gearing up to increase tax collection by Sh323.5 billion as part of its budget spending strategy, with the William Ruto-led administration outlining plans to allocate a total of Sh4.55 trillion, primarily directed towards salaries and debt repayments.
Outlined in the 2024 Budget Policy Statement (BPS), the government aims to gather Sh2.95 trillion in taxes during the fiscal year 2024/25 (from July to June). This ambitious goal relies on proposed comprehensive tax reforms targeting traditionally challenging sectors such as informal economies, digital enterprises, and agricultural activities.
In the current fiscal year, set to conclude in June, the Kenya Revenue Authority (KRA) has been tasked with collecting Sh2.62 trillion from both direct and indirect taxes. However, the agency faces a considerable challenge, having already fallen short by Sh186.2 billion in the first six months. Notably, corporate and individual income taxes account for the bulk of this deficit, as revealed by a Treasury report. These revenue-raising struggles coincide with the Kenya Kwanza administration’s emphasis on elevated taxation to address budgetary shortfalls, a strategy termed fiscal consolidation.
“The consolidation will be supported by enhanced revenue mobilization and rationalization of non-priority expenditure while protecting essential social and development budgets.”said the Cabinet Secretary for National Treasury and Economic Planning Professor Njuguna Ndung’u.
To bolster fiscal stability, the government has engaged in a conditional financing agreement with the International Monetary Fund (IMF), aiming to stave off a potential fiscal crisis, especially with the looming June deadline for the repayment of the $2 billion (Sh291 billion) Eurobond.
Recent developments include the Treasury’s successful issuance of a $1.5 billion Eurobond, with the proceeds earmarked for repurchasing a portion of the 2024 sovereign bond. Looking ahead, the National Treasury plans to borrow Sh753.2 billion in the upcoming fiscal year, with a significant portion, Sh377.7 billion, sourced domestically, while Sh326.1 billion will be sought from foreign creditors, primarily multilateral institutions like the World Bank and the IMF.
