Kenya’s Tax Burden to Rise by Ksh.1 Trillion by 2027

The Kenya Kwanza administration’s ambition to increase the tax to Gross Domestic Product (GDP) ratio will result in a significant increase in the tax burden for Kenyans to realize this goal.

In his budget statement read in Parliament on Thursday, Treasury Cabinet Secretary Prof. Njuguna Ndung’u proposed that by implementing the Medium-Term Revenue Strategy (MTRS), the Treasury aims to expand the tax base to 20 percent of GDP over the medium term, up from the current 15 percent for the 2024/25 financial year.

Deloitte Partner Fred Omondi commented, “They will be relying on the same taxpayers to raise that money, and a 5 percent increase is substantial—it’s over a trillion shillings in extra taxes. So you can anticipate the amount you’ll need to pay over the next two or three years if the government wants to collect an additional trillion shillings from existing taxpayers.”

While Deloitte acknowledges the government could achieve its target for taxes as a percentage of GDP, they remain skeptical about the government’s ability to find innovative ways to widen the tax bracket. Given that the revenue authority has struggled to meet its targets, the easily targeted sectors remain vulnerable to additional tax measures.

“What is currently happening is that by increasing tax rates and eliminating incentives, we are taking more from existing taxpayers. If you’re paying taxes of 20/30 percent now, you will be paying 40 percent with increased levies and all that. This approach diminishes your net or disposable income. The challenge we face is the reluctance to do the hard work of targeting the hard-to-tax sectors,” added Mr. Omondi.

Currently, Kenya trails Rwanda in the East Africa economic bloc, with Rwanda’s tax to GDP rate at 17 percent. However, Kenya’s rate of 15 percent is still ahead of Uganda and Tanzania, which stand at 12.2 percent and 11.8 percent, respectively.

If Kenya achieves the 20 percent tax rate to GDP, it will join South Africa and Morocco as some of the highest taxed countries on the continent. According to data from Deloitte, Morocco’s tax rates stand at 27.1 percent of GDP, with South Africa at 27 percent.