IMF Directors Push Kenya to Implement New Tax Proposal

President William Ruto and IMF Managing Director Kristalina Georgieva in France on June 22, 2023.
President William Ruto and IMF Managing Director Kristalina Georgieva in France on June 22, 2023.
PCS

Executive Directors from the International Monetary Fund (IMF) on Wednesday called for urgent implementation of tax reforms announced by the Treasury.

The directors noted that it was timely for Kenya to urgently adopt the measures outlined in the Medium-Term Revenue Strategy (MTRS) which covers the financial year 2024/25 to 2026/27.

"On tax collections, Directors expressed concerns over recent shortfalls and called for urgent implementation of corrective measures," read part of a statement from IMF.

The MTRS was proposed in September 2023 by Treasury Cabinet Secretary Njuguna Ndung'u to introduce a new tax policy for Kenyans.

International Monetary Fund office.
The International Monetary Fund (IMF) offices in Washington, US.
Photo
IMF

It also called for the introduction of various taxes including, the wealth tax, minimum tax, increased Value Added Tax (VAT) on select products, and VAT on education and insurance services among others.

Other new taxes include a carbon tax, surcharge tax, and motor vehicle circulation tax.

Meanwhile, the IMF called upon Kenya to manage fiscal risks proactively including financial bills. The directors also encourage strengthening the debt management capacity.

IMF also lauded Kenya for the recent monetary policy tightening implemented by President William Ruto.

"They also positively noted efforts to enhance the effectiveness of the monetary policy framework and the efficient functioning of financial markets," read the statement in parts.

The international body also warned Kenya about an expected increase in inflation in the first half of 2024. This is due to the volatility in global oil prices and the exchange rate.

The Medium-Term Revenue Strategy 2023

The strategy aims to boost the country's tax revenues and raise the revenue yields. It targets to increase the revenue from 13.5 per cent to 20 per cent of the Gross Domestic Product (GDP) which is in line with the East Africa Community target.

Under the strategy, the government seeks to introduce a few taxes as well as reduce some.

CS Ndung'u proposed the reduction of the corporate income tax, phasing out the preferential corporate tax, reviewing the Pay As You Earn (PAYE), and reviewing the exercise duty on betting and gaming taxes.

The CS also proposed the increase of a few taxes including the exercise duty on alcoholic products, tobacco, and non-alcoholic beverages.

"The MTRS provides a framework for tax reforms aimed at boosting domestic revenue which has been declining over time," the CS stated.

Treasury Cabinet Secretary Njuguna Ndung'u at Parliament Buildings on Thursday, June 15, 2023.
Treasury Cabinet Secretary Njuguna Ndung'u at Parliament Buildings on Thursday, June 15, 2023.
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Parliament of Kenya
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