On Thursday, June 13, 2024, Prof. Njuguna Ndung’u, the Cabinet Secretary for the National Treasury and Economic Planning, delivered the FY24/25 Budget Statement to the National Assembly. The theme for this year’s budget is “Sustaining BETA, Fiscal Consolidation, and Investing in Climate Change Mitigation and Adaptation for Improved Livelihoods.” 

In his statement, Prof Ndung’u acknowledges the significant challenges Kenya faces in collecting enough revenue. This is rooted in demands for increased expenditure, which translates to increased debt or increased taxes. Furthermore, there are limitations in mobilising higher tax revenues due to a large informal sector, tax expenditures, low compliance rates, and difficulties in taxing the digital economy. To address these challenges, the Cabinet Secretary proposed implementing tax policy and administration measures outlined in the Finance Bill, 2024. Additionally, improving expenditure efficiency is seen as a viable solution. One significant proposal is the implementation of the Treasury Single Account (TSA) in a clustered approach. This system will consolidate government cash resources into a single account at the Central Bank of Kenya, with sub-accounts at commercial banks. The migration to the TSA system will begin on July 1, 2024.

The Budget Statement highlights the government’s focus on embracing the digital economy. This includes significant efforts to bridge the digital gap between urban and rural areas, with investments aimed at improving broadband connectivity through initiatives like the Last Mile County Connectivity Network. This network seeks to extend the National Fibre Optic Backbone, thereby enhancing internet connectivity across the country. The government’s allocation of Ksh 16.3 billion to fund initiatives in the Information, Communication and Technology sector underscores its commitment to this digital transformation

The financial services sector is similarly recognised as a key driver of economic growth. The Cabinet Secretary highlighted key reforms in the sector aimed at supporting Kenya’s socio-economic transformation. This includes the licensing and oversight of Digital Credit Providers, meant to tackle issues such as high credit costs, unethical debt collection practices, lack of transparency, and breaches of data privacy. Additionally, the draft Kenya Green Finance Taxonomy was issued for public participation. This tool will help classify economic activities as ‘green’ or environmentally sustainable, guiding the banking sector and other market participants in making informed investment and financing decisions. The Central Bank’s Anti-Money Laundering and Combating the Financing of Terrorism framework was also revised. 

Investment in infrastructure is a cornerstone of the government’s economic strategy. Significant funds have been allocated to various infrastructure projects, including the construction of roads, bridges, and ports. These projects are expected to improve connectivity, reduce transportation costs, and boost economic activities across the country. The government’s focus on infrastructure development is seen as essential for supporting other sectors, such as manufacturing, agriculture, and tourism

The Cabinet Secretary (CS) outlined several proposals presented by Kenya during pre-budget consultations with other East African Community (EAC) partner states. These proposals aim to boost the competitiveness of locally manufactured products through duty remission and stays of application. These proposals involve duty remission and stays of application. Specifically, stays of application of import duty rates per the EAC Common External Tariff (CET) will apply for one year on various items. Additionally, duty remission will apply for one year on the importation of inputs for the manufacture and assembly of smart telecommunication devices, including mobile phones, laptops, and tablets. It will also cover raw materials for the manufacture of parts used in the assembly of motorcycles, such as leaf springs and wiring harnesses, and completely knocked-down kits for motorcycle assembly at a rate of 10%. A full list of changes to the EAC customs laws will be published through an EAC Gazette Notice at the end of June and will become effective on July 1, 2024.

The Cabinet Secretary’s Budget Statement reiterates the significant tax proposals in the Finance Bill, 2024, reflecting the government’s ongoing efforts to reform the tax system and improve revenue collection. As proposed in the Finance Bill, the CS has retained the proposal to introduce motor vehicle tax. Also worth noting is that although the Finance Bill, 2024, proposed raising the rate on money transfer fees by cellular mobile service providers from 15% to 20%, the CS announced that the 15% rate will be maintained.

The FY24/25 Budget Statement presents a comprehensive framework aimed at addressing Kenya’s fiscal challenges while promoting economic growth and sustainability. As the country grapples with revenue collection issues and the need for fiscal consolidation, the focus on the Bottom-up Economic Transformation Agenda highlights a strategic approach to driving long-term economic resilience. The upcoming outcomes of these budgetary measures, particularly the proposed tax reforms and investments in key sectors, will be crucial in determining their effectiveness. Stakeholders and the public alike will be keenly observing how these initiatives unfold, especially given the delicate balance between fostering growth and managing debt. The true impact of this budget will become clearer as its provisions are implemented and their results assessed in the months to come.