Parliamentary Budget Office warns against new taxes amid economic strain

Instead, the budget office has recommended that the government focus on enhancing current revenue-raising strategies and leverage technology to address existing loopholes.

President Ruto's administration is currently grappling with the economic repercussions of the rejected Finance Bill 2024, which has led to cuts in the expenditure budget, reductions in ministerial allocations, and the freezing of new development projects across the country. 

The PBO, a professional body that provides fiscal and economic advice to the legislature, has issued a red alert in its latest report, titled "Budget Watch for 2024/2025."

Due to the budget cuts stemming from the rejection of the Finance Bill and ongoing revenue shortfalls, the country has become increasingly reliant on development partners and donors, who now account for 43% of the development budget.

As the Treasury presents a range of proposals for consideration—some of which were previously rejected in the Finance Bill—the PBO warns that implementing new tax policies does not necessarily lead to improved compliance or increased revenue. 

The office emphasizes the need to carefully assess the indirect effects of any proposed tax changes.

In its recommendations, the budget office suggests that the government prioritize alternative approaches to revenue enhancement rather than new tax proposals. 

This includes closely monitoring the current tax administration systems to ensure their effective implementation.

The report further advises the government to focus on improving tax administration through better enforcement of existing tax policies instead of imposing new tax burdens on Kenyans.

In the 2022/2023 financial year, the Treasury recorded a revenue shortfall of 123 billion shillings, which escalated to 205 billion shillings in the following year ending June 2024. 

With these revenue shortfalls posing a significant challenge to government expenditure, the strain on the budget is becoming increasingly concerning.

The budget office is now calling for stringent expenditure rationalization by reducing non-priority spending, implementing an e-procurement system to enhance transparency, and identifying commercially viable projects to be undertaken under public-private partnerships