Big Four professional services firm Ernst & Young has linked Kenya Revenue Authority’s (KRA) failure to meet tax targets to unrealistic budgets.
- •During a pre-budget media briefing in Nairobi, EY noted that Kenya’s budgets are often inflated and contain unsupported expenditures while minimal progress has been made to expand the tax bracket.
- •The National Treasury has cut its revenue collection target for Kenya Revenue Authority (KRA) for the next financial year, conceding that it has over the years set ambitious targets for the taxman that has in turn perennially missed the targets.
- •In the 2025 Budget Policy Statement (BPS), Treasury reduced the target for ordinary revenue to KSh 2.835 trillion from the earlier target set in the draft BPS of KSh 3.018 trillion.
The projected total revenue, which includes tax revenues collected by KRA and ministerial appropriation-in-aid (AIA), has also come down to Sh3.385 trillion from the earlier projection of Sh3.516 trillion in the draft BPS.
This will leave a fiscal deficit of KSh 831.0 billion. Expenditure projections include overall expenditure and net lending at KSh 4.26 trillion (22.1% of GDP), with recurrent expenditure at KSh 3.096 trillion (16.1% of GDP) and development expenditure at KSh 725.1 billion (3.8% of GDP).
Key highlights in the pre-budget briefing
Global Economic Outlook: The global economy is stabilizing, with the World Economic Situation and Prospects 2024 forecasting a 3.3% GDP growth for both 2025 and 2026. However, challenges such as policy uncertainty, trade issues, and geopolitical tensions remain.
Africa Economic Outlook: Africa’s GDP growth is projected at 4.1% in 2025 and 4.4% in 2026, driven by economic reforms and recovery in key sectors like hydrocarbons, tourism, and agriculture.
However, high inflation and fiscal deficits pose challenges.
East Africa Economic Outlook: East Africa’s GDP growth is expected to rise to 5.3% in 2025 and 6.1% in 2026, with key growth drivers including private investment and government spending on infrastructure.
Kenya’s Economic Outlook: Kenya’s macroeconomic environment improved in 2024 with reduced inflation and a stabilized exchange rate. However, challenges include structural issues, governance problems, and high fiscal vulnerabilities.
Sectoral Analysis
Banking Sector: The banking sector in Kenya saw an increase in gross loans and advances by 5% from KSh 3.98 trillion in June 2023 to KSh 4.04 trillion in June 2024. However, gross non-performing loans (NPLs) also increased from KSh 576.1 billion to KSh 657.6 billion during the same period. T
he sector recorded a slight increase in pre-tax profits to KSh 245.7 billion in June 2024 from KSh 244.5 billion in June 2023. Key developments impacting commercial banks include cuts to policy rates, inflationary pressures, political tensions, and foreign exchange volatility.
Consumer Products (CP) Sector: The CP sector continues to navigate ongoing growth headwinds, including inflation, changing consumer demographics, and evolving customer dynamics.
The annual consumer price inflation increased to 3.6% from 2.7% in October 2024, driven primarily by the rise in prices of items in the Food and Non-Alcoholic Beverages category (6.6%) and Transport category (1.5%).
Companies are making strategic decisions to stay profitable amid these challenges, such as reconfiguring supply chains and products with lower-cost ingredients.
