KENYA : The International Monetary Fund (IMF) has issued an ultimatum to the government of Kenya as it disbursed Sh 78.1 billion loan to support the cash-strapped Kenya-Kwanza administration budgetary needs.
The President William Ruto led government, as part of the Multi-Billion loan, is expected to enhance tax collection masures as part of its commitment to fiscal consolidation.
IMF First Deputy Managing Director Gita Gopinath in a statement, said A difficult adjustment path lies ahead for Kenya and A credible fiscal consolidation strategy remains central to addressing debt vulnerabilities.
Ms. Gita emphasized the need for the East African Country to introduce new Tax Reforms for efficiency and Accountability.
Despite the High cost of Living Squeeze, The International Monetary Fund made it clear that Kenya must enact swift reforms including expanding the tax base, a move that could come as a bitter pill for taxpayers.
“Reforms to make the tax regime more efficient, equitable, and progressive as well as strengthening accountability, transparency, and efficiency of public finances will help garner political and societal support for reforms." Gopinath said.
The funds come as a big relief for the cash-strapped Kenya Kwanza administration, which had been anxiously waiting on the bailout, following the Disbandment of the Finance Bill 2024.
In a Publication today, Kenya's National Treasury has given notice of its intention to roll out new tax proposals under the Tax Laws (Amendment) Bill, 2024, for consideration in the National Assembly.
The Cs John Mbadi led Ministry, deemed the Bills necessary with an aim to boost tax revenue and strengthening funding. The new taxes will add a burden to Kenyan Taxpayers and Multinationals in the East African Country.
The bill's most notable changes include converting healthcare and housing contributions into tax-deductible expenses, replacing the Digital Services Tax with a Significant Economic Presence Tax at an effective rate of 6% of turnover (up from 1.5%), and implementing a 15% Minimum Top-Up Tax for multinational enterprises with annual consolidated turnover exceeding €750 million.
The legislation also introduces new withholding tax rates for public entity payments, increases the VAT registration threshold from KES 5 million to KES 8 million, and expands the definition of digital marketplace services to include ride-hailing, food delivery, and freelance services.
These reforms align with Kenya's Medium-Term Revenue Strategy to increase the tax-to-GDP ratio from 14.1% to 20% within three fiscal years (2024/25 to 2026/27), while simultaneously modernizing the tax framework to capture the growing digital economy and ensure compliance with international tax standards
The changes are set to take effect, with certain digital economy provisions commencing from January 1, 2025, requiring businesses and individuals to adapt their financial planning and compliance systems accordingly.
During the launch of the Budget Preparation Process, a few months ago, National Treasury and Economic Planning Cabinet Secretary (CS) CPA John Mbadi, Said the Treasury has developed a medium-term revenue strategy to enhance domestic revenue mobilisation.
He reiterated that the Strategy guides the Tax Administration on how to improve efficiency in the administration of tax laws, create tax rates, and build the tax base.
John Mbadi stated the budget will be anchored on the fourth Medium Term Plan (MTP IV), Vision 2030, and support the implementation of the government's Agenda.
The focus, he said, remains on the five pillars with the largest impact on the economy, including agricultural transformation, the MSME economy, healthcare housing and settlement, and Digital Superhighway and creative economy.