President Ruto’s Government Proposes Tax Reforms to Fund Bottom-Up Agenda

President Ruto’s administration is unveiling a series of tax reforms designed to broaden the tax base, thereby generating increased revenue to support the implementation of the “bottom-up” economic agenda.
The proposed plan encompasses a comprehensive review of existing income tax legislation and the introduction of new tax measures to address the current revenue shortfall. Treasury CS Njuguna Ndung’u has asserted the fiscal prudence of these measures, affirming that Kenya possesses the capacity to elevate tax collection to levels equivalent to 25% of the Gross Domestic Product (GDP).
“In the fiscal year 2022/23, Kenya’s tax gap was estimated at 11.5% of GDP. It is imperative that we implement strategies to augment the tax-to-GDP ratio, ensuring the efficient provision of public services,” Ndung’u emphasized.
Outlined below are the six new taxes proposed by the Treasury for the forthcoming financial year:
1. Motor Vehicle Circulation Tax
2. Carbon Tax
3. 5% Withholding Tax on Agricultural Produce
4. Value-Added Tax (VAT) on Insurance Services
5. Value-Added Tax (VAT) on Education Services
However, the unveiling of these proposed taxes has sparked significant controversy and opposition among the Kenyan populace. Noah Wamalwa, a Program Officer at the Kenya Institute of Economic Affairs, expressed concerns, particularly regarding the tax on education services. Wamalwa argued that this tax contradicts the objectives of the competence-based curriculum.
“Firstly, it is erroneous for the Treasury to categorize ‘swimming’ and similar activities as supplementary services. These activities are part of sports education, constituting co-curricular activities expressly allowed under the BASIC EDUCATION ACT No. 14 of 2013, Section 54(7)(r). This section states that the County Director of Education shall, subject to the authority of the Cabinet Secretary and in consultation with the County Government, oversee functions such as the management of co-curricular activities, sports education, and talent development in basic education institutions within the County,” Wamalwa contended.
The discourse surrounding these proposed tax changes underscores the importance of striking a balance between revenue generation and the preservation of essential services and sectors. It remains to be seen how these tax reforms will evolve and whether they will align with the broader goals of the “bottom-up” economic model promoted by President Ruto’s government.