Government Plans to Lower VAT and Other Taxes: A Potential Relief for Kenyans

The Kenyan government is set to reduce Value-Added Tax (VAT) and other taxes, according to recent statements by Treasury Cabinet Secretary John Mbadi. During the launch of the FY 2025/26 Budget Preparation Process on Monday, Mbadi outlined the government’s intentions to lower VAT from 16% to 14%, along with reductions in corporate tax and other fiscal levies.

The announcement comes at a time when many Kenyans are grappling with high living costs and economic uncertainty. By cutting VAT, the government aims to ease the financial burden on consumers and stimulate economic activity. The proposed tax cuts are part of the National Treasury’s medium-term budget strategy, which focuses on enhancing efficiency and accountability in public resource management.

Mbadi emphasized that despite the planned tax reductions, the government will not support any additional expenditures. Instead, the focus will be on improving the efficiency and transparency of public spending. A new financial management system is set to be implemented, with a particular emphasis on transparent procurement processes. This move aligns with the government’s broader goal of fostering a more accountable and effective use of resources.

“Agriculture will be prioritized to support manufacturing and economic growth, with a focus on SMEs and housing. Despite operating under fiscal constraints, the government will work to ensure growth and broaden opportunities,” Mbadi stated. The government’s fourth medium-term plan includes key areas of focus: transforming the agricultural sector, boosting the Micro, Small, and Medium Enterprise (MSME) economy, advancing housing and settlement initiatives, improving healthcare, and developing the digital superhighway.

The Treasury Cabinet Secretary also addressed the current fiscal year’s budget, highlighting that its implementation has begun in earnest. However, following the withdrawal of the 2024 Finance Bill, the government has had to forego additional revenue measures that were previously planned. As a result, the government has implemented measures aimed at aligning priorities with the available resources, ensuring that essential services and projects continue to receive the necessary funding.

Treasury Principal Secretary Chris Kiptoo underscored the importance of adhering to the Budget Review and Outlook Paper (BROP), sector budgets, and revenue bills. He highlighted the need for a zero-based budgeting approach, which requires all expenses to be justified for each new period, rather than carrying over previous budgets. This approach aims to ensure that every shilling spent is accounted for and aligned with current priorities.

Kiptoo announced that budget review meetings will be held to monitor adherence to these fiscal policies and to ensure that resources are allocated efficiently. These meetings will play a crucial role in maintaining fiscal discipline and transparency in the budgeting process.

The government’s strategy reflects a commitment to navigating fiscal constraints while striving to support key sectors of the economy. By prioritizing agriculture, SMEs, housing, and healthcare, the government aims to lay the groundwork for sustainable economic growth and development. The planned tax reductions, coupled with a focus on efficiency and accountability, could provide a much-needed boost to both businesses and households struggling under the weight of high taxes and economic uncertainty.

As the government prepares to implement these changes, all eyes will be on the impact of the VAT and tax reductions. If successful, these measures could serve as a critical step towards relieving financial pressures on Kenyans and fostering a more resilient and dynamic economy.