Kenya set to revive some tax measures in the scrapped Finance Bill

The Kenyan ministry of finance is planning to bring back some of the taxes in the defunct controversial Finance Bill in a new attempt to widen tax net, raise more revenues and slash borrowings.

Kenyan lawmakers were forced to drop the bill after weeks of protests which led to the deaths of not less than 61 people.

The taxes that formed part of the Finance Bill 2024 and aimed to raise additional 344 billion shillings ($2.7 billion) in the current fiscal year were scrapped following the youth-led demonstrations.

President William Ruto was equally forced to sack his entire cabinet, including then-Treasury Secretary Njuguna Ndung’u and cut down on the cost of governance.

“Our team is already working on some of those proposals that were in the Finance Bill 2024, which we can now put together and take back to parliament, not as a Finance Bill, but as other proposals,” John Mbadi, the new treasury head, said Monday, according to a report by Bloomberg.

Mbadi said a public consultation will be done in order to avoid a repeat of what brought economic activities in the most advanced east African economy to a halt for weeks.

“We will do extensive public participation because we don’t want to be blamed again, to be accused of introducing things that are insensitive without considering the plight and concerns of Kenyans,” he said.

Some of the proposed taxes had included increasing levies on essentials such as bread and diapers.

The abandoned bill had been the second since Ruto came to power in 2022.

The Ruto-led government had first introduced a contentious housing tax, doubled value-added tax on fuel and hiked the rate for the top salary-tax band to 35 percent.

Ruto’s administration has been under pressure to shore up tax collection and slash borrowing under a $3.6 billion funding program agreed with the International Monetary Fund to address Kenya’s debt vulnerabilities.

At about 70 percent of gross domestic product, its debt is considered at high risk of distress.

The Treasury had to revise its budget to accommodate the drop in expected revenue after it abandoned the new proposals, thereby widening its fiscal deficit to 4.2 percent of gross domestic product from an initial 3.3 percent.

“It would be wrong and an insult to the people of Kenya to reintroduce the finance bill,” Mbadi said. “But there are provisions in that bill that would have helped the country to grow.”

Measures under consideration include extending a tax amnesty and plugging leakages through “fictitious” value-added tax refunds, Mbadi said.

About 65 percent of the Kenya’s 525 billion shillings of tax expenditure was in refunds, he said. Some critical commodities that have a direct impact on the cost of living will be tax-exempt, rather than zero-rated, Mbadi said.

Zero-rated goods are not taxed at the point of sale but producers can claim VAT on inputs, while makers of exempt goods can’t demand such refunds.