Treasury mulls using current taxes to finance next budget
The National Treasury Building in Nairobi.
The National Treasury has raised the possibility of using current taxes to finance the next budget, a cautious move after last year’s proposed taxes caused countrywide protests and a withdrawal of the Finance Bill 2024.
Treasury Cabinet Secretary John Mbadi made the suggestion on Thursday, February 13 as he faced questions about whether the government was planning to introduce a new Finance Bill this year.
This followed widespread public reaction to the Finance Bill 2024 which aroused countrywide protests amid anger about proposed taxes that were perceived as punitive, which culminated in a rare withdrawal of the bill after the President declined to sign it into law.
In a public address outside National Treasury offices in Nairobi, CS Mbadi on Thursday said that applying current taxes to finance the budget for the fiscal year starting July 2025 was on the table.
“There is also a misconception in this country that you need a new Finance Bill all the time to finance the budget. That is not true. Even without a Finance Bill, we have tax rates that are obtaining. Finance bill only varies the rates but we already have a legal framework for all taxes. We can use the same tax rates to raise revenue to finance this budget” he said.
Mr Mbadi defended the possibility of using current tax rates during the 2025/26 fiscal year as being that Kenya already has laws to back existing taxes, even as he noted that it remains a constitutional requirement to have a finance bill every year.
The CS also raised the possibility of the government presenting a Finance Bill without changes to current tax rates, indicating that the Treasury has revised down tax projections for the fiscal year starting July from Sh3.018 trillion to Sh2.835 trillion.
“It’s a constitutional requirement that every year we must prepare a finance bill. What is not a must is to have a finance bill with increased rates of taxation. No one says that that finance bill must always have an increase in our taxes. It can have a decrease; it can remain the same but we will have to produce a finance bill. However thin,” the CS said.
He noted that public engagements about the Finance Bill 2025 have already started.
Treasury has presented a Sh4.2 trillion budget for the 2025/26 fiscal year, which it hopes to finance using Sh2.8 trillion taxes.
The Kenya Revenue Authority (KRA) has, however, been struggling to meet revenue targets during the current fiscal year, which could leave the government seeking rescue from creditors in order to finance operations.
Gazetted Treasury statements until the end of December 2024 show that KRA had collected Sh1.07 trillion in taxes, missing targets in five out of the six months since July 2024.
“It is true that in the first six months, KRA did not meet the targets, more particularly in July, August, and September. We had a problem in November, but in October KRA met targets. In December, we didn’t meet targets but the targets were very high. January has shown very positive signs,” CS Mbadi said.
The streak of missed revenue targets could have prompted Treasury to revise down projections for the coming fiscal year, with the CS saying the downward revision was meant to “reflect the reality.”
Tax figures presented by Treasury Principal Secretary (PS) Chris Kiptoo, however, differ from figures the Treasury has been gazetting to show monthly tax performance.
The PS indicated that in July KRA collected Sh199 billion in taxes but Treasury gazetted Sh159.5 billion as the taxes collected during the month.
The PS also said that KRA collected Sh173 billion in August while the gazetted figure is Sh153.3 billion, he said that in September KRA collected Sh236 billion against the gazetted figure of Sh212.7 billion, and in October the PS said KRA collected Sh207 billion, yet Treasury gazette a figure of Sh171.2 billion.
The PS did not provide figures for November and December collections, only stating that targets were missed by Sh10 billion and Sh16.5 billion during the two months, respectively.
As per the gazetted figures, KRA collected Sh160.3 billion in November 2024 and Sh217 billion in December.
“The total revenue target missed was by Sh90 billion for the first six months. We hope that in the next six months, we will not miss any target,” CS Mbadi said.
Treasury appeared to blame last year’s Gen Z protests and low credit provision by banks to the private sector for poor economic performance that has been reflected in low revenues and slower economic growth last year.
“The civil unrest for about three months, you don’t expect the economy to grow while people are all over the streets. People are not doing business,” the CS said.
Treasury is banking on the continuation of loans from the International Monetary Fund (IMF) which has been offering budgetary support since April 2021 even after the end of the programme in April this year.
Mr Kiptoo said that Kenya is expecting to get $800 million (about Sh103 billion) in funding from the IMF by April when the programme ends, even as talks continue for a new programme.
Upon receipt of the $800 million, the total funding Kenya has received from the IMF over the four years will hit $4.2 billion (equivalent to Sh541 billion at current exchange rates).
“Our intention is not to leave a gap. The IMF programme is important for us and the reforms that we continue carrying are our own reforms. Our desire is that we continue discussing going into a new programme,” PS Kiptoo said.