Kenya Plans Tax Cuts to Ease Financial Strain. In a significant move to ease the financial strain on Kenyans, Treasury Cabinet Secretary John Mbadi has unveiled the government’s plan to introduce sweeping tax cuts over the next three years.
This includes a reduction in Value-Added Tax (VAT) from 16% to 14%, a decrease in corporate tax from 30% to 25%, and unspecified cuts to pay-as-you-earn (PAYE) rates.
Speaking during the launch of the 2025/26 Budget Preparation Process in Nairobi, Mbadi outlined the medium-term strategy aimed at improving tax administration, boosting compliance, and expanding the tax base.
“I will surprise you; in the medium term, we want to reduce tax rates. We are not looking at increasing taxes,” he said.
The proposed tax reductions are part of the Treasury’s broader economic resilience plan, targeting key sectors such as agriculture, manufacturing, and affordable housing.
Mbadi stressed that the government will not introduce new expenditures but will instead focus on improving efficiency, accountability, and the effective use of resources.
“The government is committed to fiscal discipline. We aim to enhance transparency in our financial management systems and in procurement processes,”
Mbadi stated. He also emphasized that despite the fiscal constraints, the government remains focused on fostering growth and expanding opportunities, especially in sectors vital for economic recovery.
Agriculture, in particular, will remain a cornerstone of the government’s strategy, as it plays a crucial role in driving the manufacturing sector and supporting small and medium enterprises (SMEs).
Affordable housing projects will also receive special attention in the upcoming Fourth Medium Term Plan, which outlines initiatives to revitalize the MSME economy, healthcare, and the digital superhighway.
The announcement comes after the suspension of the 2024 Finance Bill, which had proposed introducing Sh346 billion in new taxes but faced strong public opposition and protests.
In response, the government made adjustments, cutting Sh177 billion in expenditures and borrowing Sh169 billion to cover the deficit. This shift affected several key initiatives, including the hiring of junior secondary school teachers.
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Reflecting on the fiscal year ending in June 2024, the Kenya Revenue Authority collected Sh313.37 billion in domestic VAT and Sh488 billion in corporate taxes.
However, with the Finance Bill no longer in play, the government has had to realign its priorities to match available resources.
“The medium-term tax cuts are expected to provide much-needed relief to households by increasing their purchasing power and to businesses by enhancing profitability,” Mbadi added.
As the government prepares for the future, these tax cuts represent a crucial part of Kenya’s broader strategy to ensure sustainable economic growth, particularly in sectors pivotal to recovery and development.
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