Kenya: Heavy Taxation Not a Solution to Kenya's Debt Problem - Tax Experts

National Bank of Kenya.

Nairobi — Tax and exchange control experts have called on the government to employ innovative revenue generation strategies as it seeks to settle the ballooning debt to avoid overburdening Kenyans and driving away investors.

While singling out the recent proposal by President William Ruto to raise the GDP-to-tax ratio from 14 percent to 22 percent, the experts argued that while the move is justified, the government should engage stakeholders from different sectors and the general public in order to achieve a balance.

Lenah Onyango, a partner at Cliffe Dekker Hofmeyr (CDH), a firm that specializes in tax dispute resolution, independent tax reviews, international tax advisory, and value-added tax, said that tax is not "necessarily" a solution to the challenges affecting the country.

She stated that the government should also look into ways of improving the lives of Kenyans, accounting for the collected taxes, and controlling government spending to ensure that Kenyans get value for their money.

"I am yet to see a country that has taxed itself to success. I think the government should take a wholesome approach. It is not about the numbers, but it is also about all the other factors that come into play to take us where we want to be as a country," she said.

Another expert, Alex Kanyi, stated that raising taxes should also be tied to services, adding that Kenyans want to see what the government is doing towards improving their livelihoods with the taxes that are being contributed.

He proposed that the government could start the process by disclosing the amount of taxes contributed in each financial year and explaining to Kenyans how the monies have been utilized.

Kanyi added that the government should also develop a clear communication strategy that will highlight the projects and programs where the taxes collected have been channeled.

"If people see the value of their tax, they will pay tax," he stated.

On May 14, President William Ruto revealed plans to progressively increase Kenya's general tax rate to 22 percent within a decade.

Speaking during a meeting with Harvard University students at State House Nairobi on Tuesday, the Head of State outlined his vision to raise the country's current tax rate from the prevailing 16 percent by the conclusion of his term.

Ruto emphasized the importance of enhancing revenue generation to fund critical government initiatives and reduce the burden of foreign borrowing.

"Kenyans have been conditioned to think that they pay the highest taxes but empirical data shows that as of last year (2023), our tax as a percentage of our revenues is 14 percent," he said.

The Head of State asserted that by increasing the average tax rate, the government seeks to expand its revenue base, thereby enabling investments in key sectors such as healthcare, education, infrastructure, and social welfare.

"Possibly this year we will be at 16 percent from 14 percent. I want to leave it between 20 and 22 percent at the end of my term," he added.

Already, under a proposed taxation plan slated for implementation in the 2024-25 fiscal year, the government has proposed more revenue measures, including a 2.5 percent wealth tax on cars pegged on value.

Ruto said the measures would secure a more sustainable financial future while fostering economic stability and growth.

President Ruto acknowledged that the tax review would generate significant debate and scrutiny, particularly regarding its potential impact on businesses, consumers, and the economy.

However, he noted that it is the best way to make Kenya self-reliant.

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