Brace for tax hikes as Treasury lines up William Ruto's maiden budget

A trader sells potatoes and onions at Hacienda traders market, Ngara, Nairobi. [Elvis Ogina, Standard]

You should prepare to pay more taxes after the government yesterday announced plans to embark on an aggressive domestic revenue mobilisation drive to fund the next budget.

The National Treasury said it will introduce several tax policies over the next year in what will be Kenya Kwanza's first national budget.

This is aimed at raising the needed resources to offset the budget deficit created by a huge public debt.

"As we prepare for the financial year 2023/24 and the medium-term budget, our focus will be on aggressive revenue mobilisation so as to bring on board additional revenues," said National Treasury Cabinet Secretary Njuguna Ndung'u.

Prof Ndung'u, who spoke in Nairobi when the National Treasury kicked off the process to begin the drafting of next year's budget, said the new government will institute targeted social protection measures as it moves to address the runaway cost of living but also cut public borrowing.

But further pain lies ahead as the government plans to unveil additional spending cuts under an International Monetary Fund (IMF)-backed programme to stabilise government finances and try to tame the country's large public debt.

IMF recently inked a deal with the new government to release $433 million (Sh52.66 billion) "in the coming weeks" to finance the budget and help fight drought but on condition that it fulfil strict austerity measures.

"In addition, we intend to contain growth in non-priority expenditures so as to reduce the fiscal deficit that will support reduction in the growth of public debt to ensure sustainability," said Prof Ndung'u during a no-frills event where tea and snacks were not served to guests as part of the new administration's broader austerity drive.

IMF wants the government to continue cutting the budget deficit by growing tax revenues and curbing wasteful expenditure as debt levels near the allowed Sh10 trillion limit.

Some of the freed-up resources will be reinvested in crucial programmes, said Prof Ndung'u, adding that the fiscal consolidation policy will help facilitate the pursuit of attaining debt sustainability.

"The policy's main objective is to free resources to growth-enhancing programmes by gradually reducing the overall fiscal deficit and the pace of debt accumulation," he said.

"Fiscal consolidation will be supported by enhanced and innovative revenue mobilisation, sustained rationalisation of non-priority recurrent expenditures and redirecting resources to finance priority growth-supporting capital projects with high return on investment."

As part of the mega plan to increase the tax base, the State will scrap a raft of tax incentives offered to consumers following in the footsteps of the austerity that saw the scrapping of the fuel and maize subsidies.

"This programme is designed to put debt on a downward path," said Treasury's Director of Macro and Fiscal Affairs Department Musa Kathanje.

"We have been doing a lot of interventions to remove tax incentives... currently we are seeking comment on the national tax policy."

Kenyans endured a successive rise in the cost of living - for the straight eighth month in a row last month - after the removal of maize flour and fuel subsidies, which saw the costs of the commodities surge amid a weakening shilling.

Any fresh tax hikes are expected to compound the consumer squeeze.

As part of a slew of austerity measures recently to cut non-plan expenditures by State departments, the government banned the holding of meetings and conferences by State officials in five-star hotels.

It also ordered all ministries and departments not to buy new equipment, including computers and furniture, as well as to do away with other non-essential expenditure.

"We want to stabilise our growth in public debt," said Mr Kathanji. "Going forward, we are going to borrow less."

President William Ruto recently ordered Ministries, Departments and Agencies (MDAs) to revise their budgets downwards in line with budget cuts.

"I have instructed Treasury to work with ministries to find savings of Sh300 billion in this year's budget," said Dr Ruto in his maiden speech as President to the National Assembly.

Yesterday, Prof Ndung'u at the same time said the Treasury will prioritize bottom-up economic interventions.

These include support to Micro Small and Medium Enterprises (MSMEs) economy by increasing access to credit to support MSMEs through interventions that correct market failure like the Hustler Fund.