Experts urge Kenya to rethink spending, tax policy ahead of 2025/26 Budget

Speaking during EY’s annual pre-budget briefing, the firm’s Associate Director for Tax, Robert Maina, raised concerns about Kenya’s persistent revenue shortfalls, questioning whether the government has been setting overly ambitious budget targets.

Francis Kamau, a senior partner, pointed to duplicated roles within government, citing bloated structures in parastatals and persistent inefficiencies that absorb resources meant for development. He also highlighted resource wastage in key sectors like health and agriculture, including expired medicines and post-harvest losses, as areas ripe for reform.

‘We must address the widespread duplication and wastage that drain public resources. Institutions like the National Cereals and Produce Board need to be streamlined and held accountable” said Maina

On the subject of external support, EY Partner Robert Nyamu noted that the conditionalities set by the International Monetary Fund (IMF) should not be viewed negatively. He argued that such conditions, which include calls for fiscal discipline, are in line with the country’s own reform needs.

“When you go to the IMF for assistance, they will ask hard questions—and rightfully so,” Nyamu said. “We cannot keep avoiding the elephant in the room. Kenya needs to have a serious national conversation about the size and efficiency of its government. Do we still need 47 counties? Are we over-governed?”

On the tax front, Hadija Nannyomo, EY’s Tax Partner, noted the IMF’s pressure on Kenya to reduce tax exemptions, which she argued have largely failed to yield value due to lack of structure and oversight. She advocated for the adoption of a more strategic tax policy, urging a revisit of COVID-era tax reliefs that saw revenue collection grow despite lower rates.

“We need to test the waters with smarter tax reductions,” she said, pointing to proposals under the Medium-Term Revenue Strategy to lower VAT to 14% and income tax to 25%. “Reducing taxes can increase disposable income, boost consumption, and ultimately raise revenue.”

The experts emphasized the need for fiscal discipline, smarter spending, and supportive tax policies to spur growth, especially for MSMEs and the informal sector, which remain Kenya’s economic backbone.

The 2025/26 Budget will be aligned with the government’s  Bottom-Up Economic Transformation Agenda (BETA), focusing on agriculture, micro and small enterprises, housing, healthcare, and digital infrastructure. The government projects total revenue at KSh 3.39 trillion, against an overall expenditure of KSh 4.26 trillion, resulting in a fiscal deficit of KSh 831 billion. Financing is expected to come from both external sources, estimated at KSh 146.8 billion, and domestic borrowing of KSh 684.2 billion.