The government is exploring ways to reduce the financial burden on citizens, including a possible cut in Value Added Tax to 15 per cent and reviewing income tax rates.
Treasury officials say any adjustments will rely on better economic performance and improved tax compliance to maintain fiscal stability.
Speaking at a leadership summit for National Assembly members in Naivasha, Treasury Principal Secretary Chris Kiptoo said the proposals form part of the National Tax Policy and Medium-Term Revenue Strategy.
These frameworks aim to streamline tax laws, encourage compliance, and widen the pool of taxpayers contributing to public revenue.
Kiptoo stressed the government’s intention to lower taxes gradually, once conditions allow.
“We desire that if the situation can improve, we want to make sure that tax rates are adjusted downwards. Like VAT should come from 16 to 15. Even income tax can be addressed,” he said.
He cautioned that reducing taxes without attracting more contributors could put a severe strain on government finances, especially as the demand for public services continues to grow.
“The challenge is when you adjust downwards, and you don’t get a corresponding expansion on the tax base. Yet on the other side of expenditure, everybody wants money for roads, for water. And you go to your constituencies, and everyone is asking for resources,” Kiptoo said.
The PS also highlighted the role of Parliament in passing revenue measures, noting that some tax proposals have faced public protests, including demonstrations led by youth in 2023 and 2024.
“The Gen Z moment came because we were bringing in this problem. We wanted to raise additional revenue. You can see the shrinking space,” he said, pointing to growing fiscal pressures from high public debt and budget deficits.
To support any potential tax cuts, Treasury is working to improve the collection of existing taxes and explore non-tax revenue options. Kiptoo revealed that the ministry recently held discussions with the Kenya Revenue Authority to boost collections without increasing tax rates.
“We are looking at deepening tax administration. Yesterday, we had a high-level meeting with KRA, trying to see how best they can collect more. We are also scaling up non-tax revenues and looking at innovative financing, including infrastructure funds,” he said.
Kiptoo said the government is also seeking to cut unnecessary spending, though this remains challenging politically and administratively.
“We try to rationalise what we call non-essential expenditures, but it is very difficult to convince someone that travel or training is not essential. Yet these are always candidates for budget cuts,” he said.
He added that priority is being given to completing ongoing projects to avoid stalled developments and unpaid bills.
“We should not start new projects before we complete existing ones. We desire to clear backlogs and make sure ongoing projects are completed,” Kiptoo said.
He defended the use of supplementary budgets, explaining that mid-year revisions are sometimes necessary due to changing economic conditions.
“We would have loved to do one budget, implement it, and bring the next one without coming back to Parliament for supplementary budgets. But when the initial plan is not going the way you want, you must come back to Parliament to seek permission to make adjustments,” he said.
The remarks come as the government faces criticism over high taxes, rising living costs, and heavy debt repayments while seeking to stabilize the economy. Treasury officials warn that the country is collecting a smaller share of revenue compared to the size of the economy, with the tax-to-GDP ratio declining over the past decade.
Kiptoo told lawmakers that tax revenue as a percentage of GDP has fallen to about 14.4 per cent, down from nearly 18 per cent in 2013 and 2014.
“Ordinary revenue as a percentage of GDP has been declining, and this is attributed to compliance gaps, tax expenditures and sectors that contribute significantly to GDP but remain lightly taxed,” he said.
He noted that the drop in revenue is linked to tax non-compliance, generous incentives to certain industries, and the limited taxation of agriculture, which accounts for around 22 per cent of the economy but contributes little to revenue.
Although total revenue continues to rise annually, the rate of growth has slowed, leaving a wider gap between available funds and government spending needs. Treasury data shows that nearly half of ordinary revenue in the 2025/26 financial year will go to debt repayments and pensions, compared to only 16 per cent a decade ago.
The share of the budget devoted to development has fallen sharply, from about 28 per cent in 2016/17 to roughly 11 per cent, as salaries, debt servicing, and administrative costs consume more resources. Kiptoo also pointed to tax exemptions and incentives, estimated at Sh500 billion, as a major factor reducing revenue. Critics argue that while intended to spur investment, many exemptions fail to generate meaningful economic benefits.
