Kenya: Treasury to Unveil New Taxes, Cut Reliefs in IMF Reform Package

Kenya: Treasury to Unveil New Taxes, Cut Reliefs in IMF Reform Package

The government plans to introduce new taxes and cut back on existing tax exemptions as part of a reforms package funded by the International Monetary Fund (IMF).

To get the latest Sh257 billion loan from the IMF, the National Treasury has also promised to control the government wage bill, in what signals tough days ahead for government employees.

Loans from the Breton Woods institution are relatively cheap, but come with tough conditions on financial discipline on the part of the borrower.

This has seen the National Treasury sign on a raft of tax reforms to boost the revenue base at a time the country is dealing with the Covid-19 pandemic, which has seen many Kenyans lose their livelihoods.

"A key pillar of the strategy is to bring the tax-to-GDP ratio back to levels achieved in recent years (from 12.9 per cent of GDP in FY20/21 to 15.6 per cent in FY23/24), so as to generate resources to meet Kenya’s development needs.

"This objective is supported by measures already taken as well as a commitment to undertake further tax policy measures of 0.8-0.9 per cent of GDP per year in FY22/23," the document explaining the IMF Kenya deal reads in part.

Treasury notes the country will continue to make Kenya’s tax system more efficient by streamlining exemptions.

"Our own analyses and IMF TA have identified substantial tax expenditures associated with a long list of tax exemptions and incentives," Treasury Cabinet Secretary Ukur Yatani said in a joint letter to the IMF with Central Bank Governor Patrick Njoroge.

Mr Yatani says the proliferation of tax expenditures in past years has made Kenya’s tax system less efficient, contributed to a decline in the revenue-to-GDP ratio and has generally not had desired effects such as price reductions for consumers or expansion of production.

"IMF TA has identified potential revenue gain of 2.6 per cent of GDP within the VAT from further removal of exemptions outside agriculture and limiting of zero-rating. IMF TA has also identified revenue potential of 0.8 per cent of GDP from more equitable taxation of capital income as well as substantial potential for further revenue from excise taxes," the document says.

"The new minimum alternative tax is a valuable tool in an equitable approach to taxation that has the potential for further enhancements. We will act within these areas to reach the programmed revenue targets, closely coordinating with the Kenya Revenue Authority (KRA) to ensure administability and timely implementation of […]

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