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

In a hurry? Here’s a quick summary…

• The Kenya Kwanza administration aims to increase the tax-to-GDP ratio from 15% to 20% by the 2024/25 financial year through the Medium-Term Revenue Strategy, potentially raising an extra Ksh. 1 trillion in tax revenue by 2027.
• Deloitte highlights concerns about the impact on existing taxpayers, with skepticism about the government’s ability to widen the tax base, potentially leading to higher tax burdens and reduced disposable income for current taxpayers.

The Kenya Kwanza administration’s ambition to increase the tax-to-Gross Domestic Product (GDP) ratio is set to place additional financial pressure on Kenyans in pursuit of this goal. 

Treasury Cabinet Secretary Prof. Njuguna Ndung’u outlined in the budget statement presented to Parliament on Thursday that through the implementation of the Medium-Term Revenue Strategy (MTRS), the Treasury aims to expand the tax base from the current 15 percent to 20 percent of GDP over the medium term, targeting the 2024/25 financial year.

According to Deloitte, this adjustment will require Kenyans to contribute an extra Ksh. 1 trillion in tax revenue between now and 2027. 

Deloitte Partner Fred Omondi noted, “They are going to be coming back to the same taxpayers to raise that money, and a 5 percent increment is not a small amount. It’s over a trillion shillings in extra taxes. 

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You can project what you’re going to be required to pay over the next two or three years if the government wants to collect an extra trillion shillings from the existing taxpayers.”

While Deloitte acknowledges the potential for the government to reach its tax-to-GDP target, there is skepticism about the government’s ability to find innovative ways to widen the tax base. 

With the revenue authority struggling to meet its targets, easily accessible sectors remain vulnerable to additional tax measures. 

Omondi explained, “When we increase tax rates and eliminate incentives, we are essentially taking more from existing taxpayers. If you’re currently paying taxes of 20/30 percent, you might end up paying 40 percent with increased levies. This approach reduces net or disposable income. The challenge lies in the reluctance to target the hard-to-tax sectors.”

Kenya’s current tax-to-GDP ratio stands at 15 percent, trailing Rwanda, which has a rate of 17 percent, but ahead of Uganda and Tanzania, which have rates of 12.2 percent and 11.8 percent, respectively. 

Achieving a 20 percent tax-to-GDP ratio would position Kenya alongside South Africa and Morocco, which have some of the highest tax rates on the continent. Data from Deloitte indicates that Morocco’s tax rate stands at 27.1 percent of GDP, while South Africa’s is 27 percent.