As the new Treasury Cabinet Secretary John Mbadi took office hours after his swearing-in at State House, Nairobi, the focus has shifted to a raft of promises that he made during his vetting.
Promises to come up with non-contentious taxes, cut Kenya’s appetite for loans, and ensure that every loan is tied to a deliverable project headline the list of pledges that Mr Mbadi made as he vouched for his approval last Saturday.
An accountant by profession, Mr Mbadi has replaced Njuguna Ndung’u who was part of the Cabinet that fell victim to the youth-led protests in June.
Formal workers and firms have borne the brunt of increased taxation while the informal sector has been targeted too in an aggressive tax drive that experts warn is doing more harm to the economy.
“The focus has been that we should be changing tax rates, we should be increasing taxes, we should be introducing new taxes, but I don’t think that should be the solution. The solution to tax mobilisation should be targeting the tax collector,” Mr Mbadi told lawmakers.
Despite a raft of new taxes introduced in July last year, the Kenya Revenue Authority (KRA) missed its revenue target by Sh267 billion in the 2023/24 financial year, shifting focus on the rationale behind the increased taxes.
However, given the high debt stress levels, increased taxation offers an easier route for Mr Mbadi, but one that can potentially further drive public outrage.
Kenya is also grappling with increased payment of commitment fees for loans amid concerns that government entities and ministries apply for loans without fully conceptualising projects.
Commitment fees— money paid for loans that are yet to be drawn— stood at Sh1.44 billion in the year that ended June 2023, highlighting the huge task that awaits Mr Mbadi in his bid to ensure that loans are expeditiously drawn.
There have been concerns that the Treasury approves the loans for a host of ministries and State agencies even before finalisation of project execution and at times before land is acquired for the infrastructural projects.
Massively flawed procurement and graft have also taken up substantial portions of loans that Kenya has tapped in recent years, presenting Mr Mbadi with yet another hurdle in delivering on his promise to ensure loans fully benefit the economy through the intended project.
Mr Mbadi’s promise to make tax compliance less costly and easier to comply with flies is likely to trigger a push from alcohol manufacturers who have since last year decried a new directive on remitting excise duty.
Alcohol manufacturers have since July last year been forced to remit excise tax within 24 hours, a requirement that has forced some to overly rely on short-term loans in order to comply, presenting an administrative and operational nightmare to the firms.
The requirement is a departure from the past where firms were to make remittances by the 20th of every month.
Despite debt payments now gobbling 73 percent of the ordinary tax collections in a financial year, little is known about the details of the loans. The promise to make the debt register public and with all details is yet another promise by Mr Mbadi amid high skepticism on whether this will be achieved.
Mr Mbadi also waded into the now emotive debate on how ministries and Parliament treat views from Kenyans regarding new taxes.
Kenyans continue to decry the heavy taxation, views that have however been blatantly shot down by ministries and Parliament.
Mr Mbadi’s pledge to ensure that public participation counts in the taxation debate will call for a delicate balance given that the National Treasury is likely to go for more taxes in a bid to raise revenues, a push that as witnessed recently, has been aggressively opposed by Kenyans.
Last week’s ruling by the Court of Appeal to nullify the Finance Act of 2023 due to lack of public participation highlights yet another hurdle that Mr Mbadi must overcome to avert blows to revenue-raising measures.
The new Treasury chief is also keen to revive all non-contentious taxes that were contained in the Finance Bill, 2024.
In a country where there is growing public outrage over heavy taxation on individuals and firms, the ghosts of the June protests loom large as Kenyans await to see what parts of the Bill will be revived.
