The government is eyeing KSh30 billion additional revenue in the next financial year from administrative reforms, which puts it off the path of increasing taxes and adding new ones, measures which led to countrywide protests last year.
- •For the FY 2025/26, Kenya’s total revenue (including Appropriation-in-Aid) is projected at Ksh 3,321.8 billion (17.2% of GDP).
- •This includes, Ordinary revenue: Ksh 2,754.7 billion (14.3% of GDP), Appropriation-in-Aid: Ksh 567.0 billion, Grants: Ksh 46.9 billion (0.2% of GDP).
- •Treasury Cabinet Secretary John Mbadi said that the state is changing tact, choosing to enhance tax revenue collection through administrative reforms by simplifying and streamlining tax laws to make them clearer and easier to implement, thereby improving taxpayer compliance.
The reforms targets reducing tax expenditures, which stood at 3.38% of GDP in 2023, to unlock additional revenue for national development and expanding the tax base and enhancing compliance, in line with the goals set out in the Medium-Term Revenue Strategy.
Focus will also be on streamlining the tax structure to encourage domestic production, attract investment, and stimulate economic activity.
“The revenue forgone through tax incentives (tax expenditures) has increased significantly, rising from Ksh 393.1 billion which is equivalent to 2.9 percent of GDP in 2022 to Ksh 510.6 billion which is equivalent to 3.4% of GDP in 2023,” noted Mbadi.
“To reverse this trend, the Finance Bill, 2025 proposes reforms to rationalise tax expenditures so as to promote equity, fairness, efficiency and reduce distortions within the tax system. The proposed reforms are in line with the National Tax Policy and the Medium-Term Revenue Strategy.”
The EAC Customs Measures
Besides the tax policy measures, the Financial Year 2025/26 KSh 4.24 Trillion budget will also be supported by customs duty measures adopted by East African Community Finance ministers during the region’s pre-budget meeting in May.
The EAC measures are intended to protect industries and ensure they access raw materials and inputs at affordable prices.
The pre-budget meeting allowed Kenya to import tea packaging materials at a lower duty of 10%. In addition, Kenya was granted an extension of duty remission to import wheat at the rate of 10%.
Additional EAC measures include:
- •Telecom Devices: Duty remission extended for inputs used in assembling mobile phones, laptops, and tablets.
- •Animal Feeds: Duty-free import of inputs for animal feed production was extended to lower production costs.
- •Leather Sector: Kenya was allowed to maintain a 35% duty on imported leather products and import leather processing chemicals under duty remission to support local tanneries and producers.
- •Transformers: A tariff split was approved to distinguish between fully built and unassembled transformers to aid local assembly.
- •Cranes: Inputs for crane assembly can be imported duty-free.
- •Packaging Paper: Kenya chose not to extend higher duty rates on certain packaging papers to ease export challenges, especially for tea, while still supporting local manufacturers through duty remission on raw materials.
