National Treasury’s revenue targets from the Finance Bill for the year starting July have been cut by 91 percent or Sh314 billion after the State opted not to impose significant new taxes or increase existing ones in budget proposals.
The Finance Bill, 2025, is expected to yield Sh30 billion in revenues, a far cry from the aggressive new revenue measures in 2024 when deadly protests broke out against the government’s measures to raise revenue.
More than 50 people were killed when the youth-led marches broke out last June, forcing President William Ruto to abandon tax hikes worth Sh346 billion.
The Sh30 billion is lower by Sh314 billion of last year’s target and less than half what the State aimed to raise after it brought new taxes in December to plug budget holes.
Treasury Cabinet Secretary John Mbadi said the fear of protests forced the abandonment of aggressive tax hikes amid the pressure to raise additional revenues from tax cheats.
The State is seeking revenues of Sh3.3 trillion for the new fiscal year, including taxes, fees like passport charges and the sale of State companies such as Safaricom and Kenya Pipeline Company.
It targets to borrow Sh916.5 billion, including Sh632.4 billion from the domestic market from banks, pension schemes and insurance firms.
“Last year’s events were a learning point for us all. Even those who joined the government after that, we had to look at ways of doing things differently,” Mr Mbadi told the Business Daily in an earlier interview.
“One of the concerns of the public agitation is that there was not much involvement, openness or transparency in the budget process and the generation of the Finance Bill, which this year I can say we have done very differently.”
The Finance Bill has departed from popular tax-raising measures such as higher excise duty on products such as alcohol, airtime, data, cigarettes, alcohol and confectionery.
Mr Mbadi has stepped up public engagements such as barazas in Nairobi and Mombasa as part of the pivot to involve Kenyans deeply in the budget-making process.
The Kenya Revenue Authority (KRA) is expected to be aggressive with tax cheats flagged after it conducted a series of background checks, lifestyle audits and vetting.
KRA is leveraging increased use of data and linkages between KRA systems with third parties such as banks and mobile money platforms like M-Pesa to spy on taxpayers’ activities, use of Internet-enabled cameras at excisable goods processing plants and full rollout of digital electronic tax registers (ETRs) to grow revenue.
In terms of tax collected as a proportion of annual economic output, Kenya has been underperforming other nations like South Africa, the State House said.
The Exchequer is, however, expected to face difficulties in raising revenues organically as measures such as expanding the tax base and closing tax loopholes fail to show results.
The funding of the current budget to June 30 has, for instance, faced headwinds as revenues collected through April missed the mark by Sh253 billion. The revenue underperformance was primarily driven by a shortfall in ordinary revenue or taxes by Sh195.3 billion and a Sh57.7 billion hole in ministerial appropriations-in-aid.
The missed revenue targets mean the government is likely to have carryover expenditures from the 2024-25 financial year to the new fiscal cycle starting July 1, adding more pressure on Mr Mbadi’s quest to fully fund the budget. The Treasury is under pressure to adhere to a fiscal deficit of no more than 4.5 percent of GDP which puts limits on the exchequer’s borrowing plans.
IC Asset Managers Economist Churchill Ogutu observed that the government has found it difficult to cut spending as a remedy to missed revenue targets, raising the stakes for carryover expenditures.
“I think the first line of defence is usually to trim the budget, but if recent budget tweaks are a guide, that is unlikely to materialize. So that leaves carryovers into the next financial year or even that some programmes will not be fully funded,” he said in a previous interview. Mr Mbadi faces more pressure from a financing perspective as external sources of funding remain limited.
The World Bank Group has pushed the approval of the Sh96.9 billion ($750 million) loan to July, moving back disbursements expected initially by June 30.
At the same time, Kenya’s pursuit of a new funding programme from the International Monetary Fund (IMF) remains uncertain even as the government is expected to push for the discussions in September this year when the fund’s staff visit Nairobi.
Kenya, however, has a backstop from a Sh193.8 billion loan from the UAE where current drawdowns stand at Sh64.6 billion ($500 million). Treasury indicated it would make further drawdowns from the facility within the 2025/26 financial year.
The Treasury has the latitude to raise domestic borrowing but faces the risk of crowding out the private sector, dimming growth in economic output via reduced loans to firms and households.
Mbadi says Treasury has avoided the temptation to overstate revenues, saying the projected fiscal deficit at 4.5 percent is realistic to the current macroeconomic picture.
“We first resisted the temptation of over-projecting revenues. I am very confident that without shocks to the economy, we could for the first time hit our targets because we are more realistic with the base,” he said.
“This budget deficit we are predicting at 4.5 percent is something we can sustain to the end of the financial year. We are also working to make our expenditures efficient and that’s why we have come up with e-procurement. We also want to improve on the quality of procurement so we can save more and release the funding to service support.”
The 2025/26 budget is estimated at Sh4.29 trillion and includes Sh2.54 trillion in spending by the national government, Sh1.09 trillion in debt service costs and a counties equitable share of Sh405 billion.
