Of harsh realities and tale of two worlds: Mbadi admits Kenyans sought to lessen burden but offers little hope

Finance and Planning Committee Chairman Kuria Kimani, National Treasury CS John Mbadi and National Assembly Budget and Appropriations Committee Chairman Samuel Atandi at Parliament Buildings, on June 11, 2026. [Boniface Okendo, Standard]

The National Treasury Cabinet Secretary John Mbadi put on a brave face as he presented his Budget statement in Parliament on Thursday, painting a contradictory image of an economy that is on the mend but one that also faces seemingly insurmountable hurdles, both domestic and global.  

The CS, on the one hand, said the Kenya Kwanza administration was delivering on its promise of growing the economy from the bottom up and has restored macroeconomic stability and strengthened public finances, which have laid a firm foundation for growth.  

However, Mbadi elaborated on shocks unfolding from multiple directions that could have a crippling impact on the economy.

The rising cost of fuel stood out as among the major risks for the economy this year and has already seen the Treasury revise its growth projection.

“The outlook for 2026 has been revised down to five per cent from the earlier projection of 5.3 per cent, reflecting the adverse impact of the ongoing conflict in the Middle East on domestic economic activities,” Mbadi told Kenyans in the National Assembly, adding that the impact has already been seen in the inflation rate, which has gone up to 6.7 per cent in May from 5.6 per cent in April and 4.4 per cent.   

Mbadi also appeared to fall short on delivering what Kenyans had called for during public engagements with the Treasury during the budget-making process.

The CS said in his public participation forums that he had wanted the government to lower the cost of essential goods, reduce wasteful spending within government and clamp down on corruption.  

He further warned the situation could worsen if the situation in the Middle East does not de-escalate. 

Thus, even as Mbadi maintained that “macroeconomic indicators remain broadly stable", he also acknowledged that “the emerging external pressures continue to impact domestic prices". 

Other than fuel, other shocks that the economy faces include climate change as well as the public health threat from Ebola. 

“Domestically, climate-related shocks could disrupt agricultural production and infrastructure, while externally, geopolitical tensions, commodity price volatility, weaker global growth, and tighter financial conditions continue to adversely affect inflation, exports and capital flows,” said Mbadi. 

Mbadi said over 11,000 health workers would be trained through the National Ebola Incident Management System and a reserve team of 241 experts in epidemiology, laboratory services and emergency response be put on standby. 

Early in his speech, Mbadi explained his engagements with Kenyans on the budget estimates and the Finance Bill, 2026.

The CS said he got a feel of what Kenyans were going through and said he had factored these sentiments.  

“The message from Kenya across the country… is clear and consistent. They want an economy that works for them, where the cost of living is manageable, where opportunities for employment and businesses are expanding and where the benefits of economic growth are shared widely across society,” he said.  

But despite the calls to reduce the overall expenditure, the Treasury is still pushing ahead with a Sh4.82 trillion budget for the 2026/2027 financial year.

This will be financed through ordinary and total revenue that has been projected at Sh3.63 trillion. The deficit of Sh1.14 trillion is expected to be financed largely through local borrowing at Sh1 billion and foreign loans of Sh116.2 billion. 

The spending has been criticised as too high, which is also not translating to better lives for Kenyans; the revenues are too ambitious, with the Kenya Revenue Authority (KRA) expected to further squeeze Kenyans as it tries to meet the high target.

Analysts have also warned that high local borrowing to plug the budget deficit also risks pushing businesses and households out of the loan market, with commercial lenders expected to lean more towards lending to the government, which is seen as more secure than lending to Kenyans. 

Mbadi on several occasions noted that domestic and global pressures demanded discipline and decisive action, which analysts noted have not been reflected in the budget-making process. 

He also elaborated on the Bill, which, though largely muted in terms of new taxes, has introduced administrative measures that are not sitting well with many Kenyans. 

Among the unpopular clauses is the removal of the tax exemption on digital transactions, which means that the fees for sending mobile money or paying through digital platforms will now attract a 16 per cent VAT.  

It has also expanded the definition of the term "royalty" to include proprietary digital platforms. This, analysts say, could classify standard software-as-a-service and fintech infrastructure as royalties and result in a 20 per cent withholding tax, with expectations that tech companies will pass the burden to their Kenyan clients, including banks.

The Finance Bill has also proposed reclassifying numerous essential products that were previously zero-rated to VAT-exempt or standard-rated categories, which is expected to increase prices of basic goods. 

It also proposed reducing by two months the general tax filing deadline for individuals and businesses from June 30 to April 30.  

The money Bill, on the flipside, increased the duty-free allowance for Kenyans returning from abroad to $2,000 (Sh260,000) from $300 (Sh39,000). This means Kenyans returning from abroad can bring in higher-value personal goods without paying VAT. 

It also exempts pension benefits paid to dependents or beneficiaries of a deceased pension scheme member from income tax.

The Bill also reintroduces the tax amnesty programme to cover the period to December 2025. 

Despite its seemingly docile nature, the Treasury expects the different measures in the Bill to help raise Sh120 billion in additional revenue. 

“I have deliberately chosen not to introduce new taxes or increase tax rates that would further overburden the hard-working Kenyans and their families. Instead, the measures are focused on reforms that improve efficiency in tax collection, create fairness in the tax system and broaden the revenue base without burdening the Mwananchi,” said Mbadi, adding that the focus of the Bill and other initiatives by Treasury is on the expansion of the tax base to relieve pressure from the few Kenyans who pay taxes. 

“Today, only 3.1 million working Kenyans contribute to Pay as You Earn. Yet millions of other Kenyans who make money in our economy do not contribute to the taxes we collect. Many of these people have been filing nil returns year after year. The burden of developing this country has therefore been on a few of us. This must change. We shall continue to broaden our tax base, a process that will help us lower tax rates to ease the burden on the few that are tax compliant.”