The government’s spending on various initiatives ranging from affordable housing, healthcare, and support for farmers and small businesses, will be footed by taxpayers following approval of the budget and the Finance Act of 2023. 

This outcome stems from the government’s implementation of comprehensive tax measures designed to curtail borrowing. Consequently, Kenya’s risk of falling into debt distress has escalated from a moderate level to a high one. Over the weekend, President William Ruto told Kenyans to bear the pain of paying taxes if they expect the country’s economy to grow. 

President Ruto’s sentiments came days after the International Monetary Fund (IMF) threw its weight behind the Finance Act, 2023. 

The Washington-based institution which has already positioned itself as a key shaper of Kenya’s monetary and fiscal policies termed the approval of the fiscal year 2023/24 budget and the Finance Act, 2023 as ‘crucial steps’ needed to support the country’s ongoing consolidation efforts to reduce debt vulnerabilities while protecting social and development expenditure.  

The President while speaking at Sagana State Lodge in Nyeri County said his administration wants to build the country on a solid foundation based on the taxes that Kenyans pay. “I have a teacher, Mwai Kibaki, who found a country that had a budget of only Ksh200 billion which he helped to raise to Ksh1 trillion. His clarion call was to pay taxes. I will follow his footsteps to build our economy,” he said. 

Dr Ruto said the former President (Mwai Kibaki) had inherited a dilapidated economy from his predecessor but grew it through taxation. 

He said when he took over power his first promise was to stabilise the country’s economy, which was in a bad state, adding: “We have now accomplished this, and we have decided never to rely on borrowing to sustain our economy again. This issue of borrowing left, right, and centre must be resolved. We must build this country on a solid foundation, not a debt foundation.”

According to Infobytes, a publication of the Kenya Yearbook Editorial Board, the President’s perspective is that the animation characterising the national and parliamentary debate over the Finance Act 2023, had more to do with the absence of a consistent culture of promise-keeping in Kenya’s politics and a faithful alignment between government policy and the people’s aspirations. 

“As a result, there are Kenyans who do not believe that a government can deliver its pledges, and view manifestos and campaign platforms as empty political performances and meaningless tricks and noise,” the President said.

The debate on the bill further showed that Kenyans don’t trust the government, with the President noting that some Kenyans are suspicious that his administration was implementing revenue measures without any intention of delivering public services at all, let alone the elaborate agenda set out in Kenya Kwanza’s Bottom-Up Economic Transformation Agenda (BETA). 

“While I appreciate the goodwill and concern, I wish to state in no uncertain terms, to clear any confusion and give comfort to all Kenyans that our administration is fully committed to the implementation of the pledges contained in the bottom-up economic transformation agenda,” President Ruto stated. 

He added: “We promised that our government would defend the constitution and constitutionalism, institutionalise issue-based, performance-oriented politics, and implement a Bottom-Up Economic Transformation Agenda. We shall not run away from any of these commitments.”

Dr Ruto said in return for Kenyans paying their due taxes timely, they not only should expect but are also entitled to receive the benefit of all government services promptly and satisfactorily.

KRA

In line with this, in May, the President challenged the Kenya Revenue Authority (KRA) to embrace technology and make tax collection friendly, insisting that the authority must make their tax system simple, transparent, and fair to collect more. This is President Ruto’s grand plan to broaden the country’s tax base and raise revenue to enable his administration to deliver on his raft of pledges. 

KRA has consistently been missing tax targets and is currently under more pressure to seal revenue leaks against the backdrop of higher collection targets set by the government. The authority is expected to collect Ksh2.57 trillion in the current financial year 2023/24, which is 17 per cent more than the Ksh2.19 trillion it was projected to collect over the last financial year which ended on June 30. 

The Head of State at one point regretted that KRA has been sluggish in facilitating Kenyans to honour their obligations. He also said the taxman has failed to deploy better technologies to boost revenues, insisting that aversion to the upgrading of revenue administration technologies was a signal of underhand dealings. “It suggests that arbitrary, opaque and corruptible revenue collection methods are the preferred modus operandi.” 

The President said KRA must undertake ‘serious and effective’ culture change and adopt the best technologies to facilitate revenue mobilisation. Through radical transformation, he added that the authority stands to attain its full contribution. 

Unpredictable tax regime

The Kenya Association of Manufacturers (KAM) and Kenya Private Sector Alliance (Kepsa) have been urging the government to streamline the country’s tax regime to make it predictable.

Last week, during the second DTB Economic and Sustainability forum in Nairobi, the National Treasury Cabinet Secretary, Prof Njuguna Ndung’u said a team from his ministry has been tasked with the responsibility of developing empirical models that will be implemented easily without distorting the market or affect revenue collection.

Prof Ndung’u said the new policy will ensure that once tax measures are implemented, they will not vary the timing of investors or the size of investments in the country. “With this, I am sure we will raise adequate resources from taxation, and we will also look at the levies and how to go about them because taxes can’t be changing time by time,” the CS said.  

Earlier in the year, KAM Chief Executive Officer Anthony Mwangi said predictability of the tax regime will allow businesses to consciously make investment decisions without worrying about the uncertainty and costs associated with reviews of taxation laws. 

Kepsa CEO Carol Kariuki also expressed concern that abrupt changes in the fiscal policies and regulations redirect the industry’s resource allocation from productivity to meeting expenses associated with the changes towards compliance first.

In October last year, President Ruto had promised manufacturers a predictable tax regime as part of his administration’s plan to attract investments. He had said his government intends to create a conducive operating environment so that the private sector can create jobs and increase its contribution to the country’s GDP. 

A predictable tax regime in Kenya has been elusive for many years making it hard for the private sector to make long-term investment decisions.