NAIROBI, Kenya – The Kenya Institute for Public Policy Research and Analysis (KIPPRA) has cautioned that Kenya could lose an estimated Sh22.53 billion in tariff revenue with the full implementation of the African Continental Free Trade Area (AfCFTA).
This significant reduction in revenue stems from the anticipated elimination of tariffs as part of the trade agreement, which aims to foster increased trade across the continent by reducing barriers.
In response to this looming financial shortfall, KIPPRA recommends that Kenya diversify its revenue streams.
The policy body suggests that the government could mitigate the loss by exploring alternative taxation methods, such as Value-Added Tax (VAT) and income taxes, as well as by intensifying efforts to combat tax evasion and expanding the tax base.
KIPPRA’s study also highlights the importance of monitoring the impact of revenue losses closely, suggesting that the government should be prepared to make necessary adjustments.
The report notes that while tariff liberalization is expected to lower prices for imported goods, particularly in service activities and manufactured items, it could also lead to reduced protection for certain sectors, such as dairy product manufacturing, which may see a 0.02 percent reduction in protectionism.
Despite the potential revenue loss, the AfCFTA is anticipated to bring several benefits to Kenya, particularly in terms of expanding exports within the region, especially to countries where Kenya previously lacked functional trade agreements.
KIPPRA suggests that Kenya could capitalize on this by strengthening trade agreements with other AfCFTA member states and regional economic communities, potentially leading to mutually beneficial partnerships that could offset some of the losses from tariff liberalization.
However, KIPPRA also warns that while the removal of tariffs is expected to improve overall welfare, some segments of the population may be negatively impacted.
To address this, the report calls for the implementation of strong consumer protection measures, transparent pricing, and targeted social safety nets to cushion vulnerable communities from potential adverse effects.
This significant reduction in revenue stems from the anticipated elimination of tariffs as part of the trade agreement, which aims to foster increased trade across the continent by reducing barriers.
In response to this looming financial shortfall, KIPPRA recommends that Kenya diversify its revenue streams.
The policy body suggests that the government could mitigate the loss by exploring alternative taxation methods, such as Value-Added Tax (VAT) and income taxes, as well as by intensifying efforts to combat tax evasion and expanding the tax base.
KIPPRA’s study also highlights the importance of monitoring the impact of revenue losses closely, suggesting that the government should be prepared to make necessary adjustments.
The report notes that while tariff liberalization is expected to lower prices for imported goods, particularly in service activities and manufactured items, it could also lead to reduced protection for certain sectors, such as dairy product manufacturing, which may see a 0.02 percent reduction in protectionism.
Despite the potential revenue loss, the AfCFTA is anticipated to bring several benefits to Kenya, particularly in terms of expanding exports within the region, especially to countries where Kenya previously lacked functional trade agreements.
KIPPRA suggests that Kenya could capitalize on this by strengthening trade agreements with other AfCFTA member states and regional economic communities, potentially leading to mutually beneficial partnerships that could offset some of the losses from tariff liberalization.
However, KIPPRA also warns that while the removal of tariffs is expected to improve overall welfare, some segments of the population may be negatively impacted.
To address this, the report calls for the implementation of strong consumer protection measures, transparent pricing, and targeted social safety nets to cushion vulnerable communities from potential adverse effects.
