Kenyans should brace for higher taxes in the next financial year as the government seeks to cut borrowing while financing an expanded KSh4.2 trillion budget for the 2025-26 fiscal year. Treasury Principal Secretary Chris Kiptoo emphasized that the government lacks the luxury to borrow further despite positive credit ratings from global firms.
The latest budget plan marks an increase from the KSh3.9 trillion expenditure for the current financial year, ending June 30. Initially, the ‘Hustler Budget’ for 2025-26 was projected at Sh4.5 trillion but was reduced to Sh4.2 trillion following Cabinet approval.
PS Kiptoo, speaking at the Diamond Trust Bank (DTB) Economic and Sustainability Forum in Nairobi, stressed the need for increased domestic revenue collection to sustain government operations and development projects. He reiterated that borrowing is not a viable option, even though credit rating agency Moody’s recently revised Kenya’s credit outlook to ‘positive,’ signaling reduced liquidity risks.
Kenya’s debt burden remains significant, standing at KSh10.8 trillion as of September last year, according to Central Bank of Kenya data. The allocation for public debt-related costs is projected to rise from Sh1.34 trillion in 2024-25 to Sh1.60 trillion in 2025-26.
To finance the ambitious budget, the Kenya Revenue Authority (KRA) has been given a higher revenue collection target of Sh2.8 trillion, up from the current year’s projected Sh2.6 trillion. Kiptoo acknowledged the challenge of balancing growing expenditure demands with limited revenue streams.
“Expenditure pressures are increasing… Kenyans are reluctant to be on the side of revenue because when we talk about tax, you hear people saying we are overtaxed,” he said. “If we are to run a budget that is approved, then resources have to be raised, and we can only raise resources by raising revenue or borrowing.”
The increased budget allocation accounts for rising salary demands, particularly from teachers and university lecturers, alongside other recurrent expenditures. Of the proposed Sh4.2 trillion, Sh3.196 trillion will go towards recurrent expenditure, Sh725.1 billion to development, Sh436.7 billion to counties, and Sh5 billion to the contingency fund.
The budget proposal, if approved by Parliament, will be the largest in Kenya’s history. Key allocations include Sh2.494 trillion to the Executive, Sh42.488 billion to Parliament, and Sh25.749 billion to the Judiciary.
To bridge the Sh831 billion budget deficit, the government faces a critical choice between tax hikes and borrowing, the latter of which it intends to minimize. This comes after last year’s Finance Bill 2024, which sought to raise an additional Sh344.3 billion, triggered nationwide protests over high taxation levels.
As the government deliberates on potential tax increments, Kenyans remain wary of further financial strain amid rising costs of living and economic uncertainty.
