NAIROBI, Kenya — The government is considering reducing Value Added Tax (VAT) to 15 per cent and reviewing income tax rates as part of broader fiscal reforms aimed at easing pressure on households, amid growing public discontent over high taxes and the rising cost of living.
The National Treasury, however, says any tax cuts will depend on improved economic conditions and stronger tax administration to protect public finances.
Speaking during a National Assembly leadership summit in Naivasha, Treasury Principal Secretary Chris Kiptoo said the proposals are anchored in the National Tax Policy and the Medium-Term Revenue Strategy, which seek to simplify tax laws, harmonise rates, and expand the tax base.
“We desire that if the situation can improve, we want to make sure that tax rates are adjusted downwards. Like VAT should come from 16 to 15. Even income tax can be addressed,” Kiptoo told MPs.
He cautioned that lowering tax rates without widening the tax base would place severe strain on government finances, especially given competing demands for public spending.
“The challenge is when you adjust downwards, and you don’t get a corresponding expansion on the tax base. Yet on the other side of expenditure, everybody wants money for roads, for water. And you go to your constituencies, and everyone is asking for resources,” he said.
Kiptoo acknowledged Parliament’s central role in approving revenue measures, noting that recent tax proposals have triggered strong public backlash, including the Gen Z-led protests witnessed in 2023 and 2024.
“The Gen Z moment came because we were bringing in this problem. We wanted to raise additional revenue. You can see the shrinking space,” he said, pointing to mounting fiscal pressures driven by rising public debt and persistent budget deficits.
To cushion the impact of any future tax cuts, Kiptoo said Treasury is intensifying efforts to improve tax administration and grow non-tax revenue. He revealed that the ministry recently held high-level talks with the Kenya Revenue Authority (KRA) to explore ways of boosting collections without increasing tax rates.
“We are looking at deepening tax administration. Yesterday, we had a high-level meeting with KRA, trying to see how best they can collect more. We are also scaling up non-tax revenues and looking at innovative financing, including infrastructure funds,” he said.
The PS said the government is also pursuing fiscal consolidation by cutting non-essential expenditure and improving efficiency in public spending, though he admitted this remains politically and administratively difficult.
“We try to rationalise what we call non-essential expenditures, but it is very difficult to convince someone that travel or training is not essential. Yet these are always candidates for budget cuts,” he said.
Kiptoo added that Treasury is prioritising completion of ongoing projects rather than launching new ones, in a bid to reduce stalled developments and clear payment backlogs.
“We should not start new projects before we complete existing ones. We desire to clear backlogs and make sure ongoing projects are completed,” he said.
He also defended the frequent use of supplementary budgets, saying shifting economic realities often force the government to revise spending plans mid-year.
“We would have loved to do one budget, implement it, and bring the next one without coming back to Parliament for supplementary budgets. But when the initial plan is not going the way you want, you must come back to Parliament to seek permission to make adjustments,” Kiptoo said.
The remarks come as the Kenya Kwanza administration faces sustained public pressure over high taxes, heavy debt repayments, and declining disposable incomes, even as it seeks to stabilise the economy and restore fiscal discipline.
Treasury has warned that the government is collecting a shrinking share of taxes from a growing economy. Kiptoo told MPs that tax revenue as a percentage of GDP has fallen to about 14.4pc, down from nearly 18pc in 2013 and 2014.
“Ordinary revenue as a percentage of GDP has been declining, and this is attributed to compliance gaps, tax expenditures and sectors that contribute significantly to GDP but remain lightly taxed,” he said.
Agriculture, which contributes about 22pc of the economy, remains lightly taxed, while generous incentives and exemptions have eroded the tax base. Treasury estimates cumulative tax expenditures at about Sh500 billion.
Although total revenue collections continue to rise, their growth rate has slowed, widening the gap between government spending needs and available resources. Nearly half of ordinary revenue in the 2025/26 financial year is projected to go to Consolidated Fund Services, including debt interest and pensions, compared to about 16pc a decade ago.
As a result, development spending has shrunk sharply. Treasury data shows the development budget has fallen from about 28pc in the 2016/17 financial year to roughly 11pc currently, as recurrent costs continue to dominate public expenditure.
