The National Treasury has told lawmakers that the government will not introduce new tax rates in the 2026 Finance Bill, choosing instead to enforce compliance and broaden the tax base.
- •Cabinet Secretary John Mbadi made the pledge while appearing before the National Assembly Budget and Appropriations Committee to present the first supplementary estimates for the 2025/26 financial year, where lawmakers are shaping the fiscal framework for the next budget.
- •He said that the government intends to raise more revenue without increasing tax rates, a position that mirrors the approach taken in the last Finance Bill and reflects a broader shift in the Treasury’s strategy since 2024.
- •Treasury is betting that tighter enforcement, digital tax collection and broader compliance can raise enough revenue to support the next budget without provoking another confrontation with the public.
“I want to state that we are not looking at a possibility of increasing tax rates because there is no difference between this year and last year Kenyans are the same and the rates are still the same. We are looking at the possibility of expanding the base,” CS Mbadi said.
The assurance comes at a moment when Parliament has already imposed a strict spending ceiling for the 2026/27 budget, limiting national government expenditure to roughly KSh2.88 trillion while overall government spending is projected to rise sharply.
According to the budget policy statement, the Executive’s allocation stands at KSh2.797 trillion, Parliament’s KSh50.7 billion, the Judiciary’s KSh30.4 billion, and the Office of the Auditor-General will receive KSh9 billion.
The 2024 Finance Bill introduced a tranche of new taxes that triggered widespread public anger and forced the administration to retreat from several proposed tax measures. The political damage from that episode continues to shape fiscal policy decisions in the Treasury, where officials are now focused on expanding the tax base and improving compliance rather than pushing through new tax rates.
“I know this has been talked about a lot and the base is not expanding as expected but we are putting pressure on KRA and some changes must be seen in terms of revenue collection. Failure to which we must make reforms to adapt to the first moving automation of revenue collection,” Mbadi said.
The shift is also being driven by electoral realities. With the 2027 general election approaching, the government appears increasingly reluctant to introduce policies that could be interpreted as new tax burdens on households already struggling with high living costs.
The committee session made clear that this will not be easy. Even as Mbadi ruled out new taxes, lawmakers are dealing with a fiscal plan that still depends heavily on borrowing. Revenue is expected to fall well short of total spending, forcing the government to rely largely on domestic debt at a time when borrowing costs are already crowding out private-sector credit and investment.
The viability of the Treasury’s gambit on administrative changes designed to bring more taxpayers into the system and improve revenue collection from sectors that have traditionally remained outside it will be tested in the coming Finance Bill.
The government is relying on digital tools such as electronic tax invoices, automated return verification, and tighter monitoring of online and small-business transactions to pull more taxpayers into the system, particularly in the informal sector, which accounts for a large share of economic activity but contributes relatively little revenue.
The challenge is that much of that economy remains cash-based and outside formal reporting structures, meaning digital enforcement often ends up squeezing already-compliant businesses rather than bringing in entirely new taxpayers. Moreover, if revenue growth falls short, the government could face renewed pressure to borrow more or scale back spending, both of which would deepen the fiscal strain already confronting the economy.
