AG Muturi defends Ruto's tax policies, says it will bolster Kenya's economy

Speaking in Kirinyaga during the dissemination of the fourth medium-term plan on Tuesday, Muturi said that the current tax levels in the country are low compared to the GDP and thus the need to raise it to the level of the economy.

Muturi said that most Kenyans have misinterpreted and misconstrued President Ruto's statement on raising the level of taxes in the country.

On May 14, 2024, President Ruto intimated his plan to significantly increase Kenya’s average tax rate.

The proposal aims to raise the current tax rate of 14 per cent to approximately 22 per cent by 2027, noting that the initiative will play a pivotal role in realising his vision for the country's economic future.

“My drive is to push Kenya, possibly this year we will be at 16 per cent from 14 per cent. I want in my term, God willing, to leave it at between 20 and 22 per cent. It's going to be difficult, I have a lot of explaining to do, people will complain but I know finally they will appreciate that the money we go to borrow from the World Bank is savings from other countries,” President Ruto said while addressing the Harvard Business School’s Class of 2025 students at State House, Nairobi.

To boost Kenya’s tax revenues, the Treasury Ministry released the Medium–Term Revenue Strategy (MTRS) for the financial years 2024/25 – 2026/27 which is set to raise Kenya’s revenue yield from the current 13.5% of the GDP to at least 20% of the GDP by the end of the financial year 2026/27. 

The exchequer rolled out the strategy at a time when there has been a decline in tax revenues as a share of the GDP and the increase in budget expenditure pressures that have resulted in a rise in the fiscal deficit to 5.5% of the GDP in the financial year 2022/23.

This would be in line with the East African Community (EAC) target of achieving a tax-to-GDP ratio of 25 percent which Kenya aims to achieve by 2030.

Some of the key revenue measures outlined in the Strategy include:

Reduction of the corporate income tax rate from 30% to 25%, re-introduction of minimum tax, which would apply to companies in a tax loss position and 

the phasing out of preferential corporate tax rates such as those applicable to Special Economic Zones (SEZs) and Export Processing Zones (EPZs). 

Other measures include the review of the non-resident withholding tax rates from the current rates to 30%, or if the corporate tax rate is reduced, to 25%, to align with the corporate income tax rate, reviewing the Pay As You Earn (PAYE) graduated scale to expand the tax bands in a bid to enhance progressivity and reduction of the highest PAYE rate to 30%.

Further reviews include a review of tax reliefs to eliminate those which are deemed counter-productive, a review of the residential rental income tax rate to align it with the corporate income tax rate of 30% or progressively increasing the current rate, increasing of standard VAT from 16% to a possible 18% to harmonize it with the regional average, review of the current VAT exemptions and zero-rated supplies with a view to zero rate only exports and retain exemptions only for unprocessed goods and increasing excise on alcoholic products, tobacco products and non-alcoholic beverages.

The aforesaid reviews are highlighted in the Finance Bill 2024/25 which have elicited uproar from the public who have termed the tax reviews as punitive and will further tear into Kenyans' pockets.