How IMF pressure shaped Ruto's tax hikes

President William Ruto and International Monetary Fund Managing Director Kristalina Georgieva at State House, Nairobi, on May 13, 2026. [Courtesy]

When the National Treasury unveiled the Finance Bill 2026 last month, critics pointed to a familiar influence behind some of its most contentious proposals — the International Monetary Fund (IMF).

For nearly two years, the Washington-based global lender has been pressing Nairobi to close a yawning fiscal gap through new taxes, spending cuts, and what the IMF calls “fiscal consolidation.” 

Now, with elections just 14 months away and an IMF funding programme frozen, President William Ruto’s government has delivered a Bill that critics say reads like the Fund’s wish list and the business community is fighting back.

The Bill, now before Parliament, proposes to expand withholding tax to card payments, raise excise duty on mobile phones from 10 per cent to 25 per cent, grant Kenya Revenue Authority powers to deem 60 per cent of undistributed profits as dividends, and allow the taxman to seize bank accounts while appeals are pending measures that eight professional bodies, including Law Society of Kenya, the Kenya Bankers Association, and four Big Four audit firms, have jointly condemned as an assault on due process and investment certainty.

READ: Inside William Ruto-IMF fallout

“This Bill is IMF-driven fiscal consolidation dressed in Kenyan law,” said a senior Treasury official who spoke on condition of anonymity.

“The Fund made clear in April that there was no credible consolidation path, no new programme. With debt service consuming 80 per cent of revenue and the Iran war hammering our fuel bill, we had no choice.”

The IMF’s guidance has been both public and private. In an April 2026 joint statement after the African Consultative Group meeting in Washington, IMF Managing Director Kristalina Georgieva and African Caucus Chairman Seedy Keita warned that the Middle East conflict added “another layer of complexity, with the potential for severe scarring, including from the return of inflation as well as other social tensions.”

But the Fund’s technical demands have been far more specific. Two IMF assessment reports released in April, seen by The Standard, found that Kenya’s debt reporting “largely not observing” international standards, with “hidden” liabilities including pending bills estimated at Sh684 billion (nearly four per cent of GDP). 

The IMF has since frozen talks on a new financing programme until Nairobi classifies securitised infrastructure debt as public borrowing a condition the Ruto government has resisted but may now be forced to accept as foreign reserves dwindle.

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Without a new IMF deal, Kenya faces a financing gap estimated at Sh885.9 billion (4.7 per cent of GDP) in the coming fiscal year.

Domestic borrowing has become prohibitively expensive, with commercial lending rates above 14.8 per cent crowding out private sector credit. International bond markets remain closed after Kenya’s Eurobond yields spiked following the Iran conflict.

The Finance Bill 2026's most contested clauses directly address IMF concerns about revenue shortfalls.

KRA missed its collection target by Sh84 billion in the nine months to March, collecting Sh2.038 trillion against a target of Sh2.122 trillion — a performance rate of just 96.1 per cent.

Critics argue that the Bill targets the wrong sectors. Kenya’s salaried middle class, already reeling from a 12 per cent decline in real wages since 2023, faces no Pay as You Earn (PAYE) relief despite the IMF’s own Medium-Term Revenue Strategy calling for expanded tax bands.

The Bill leaves the top PAYE rate at 35 per cent, higher than the corporate rate of 30 per cent.

Clause 16 of the Bill gives KRA the power to deem at least 60 per cent of a company’s undistributed income as dividends, thereby taxing retained earnings.