Brace yourself for more pain as the Treasury proposes an increase of VAT tax to 18 percent

National Treasury proposes an increase of VAT tax from 16 to 18 percent in a bid to raise more revenue to fund the government.

Kenyans should expect to pay higher taxes in the near future as the National Treasury plans to raise the value-added tax (VAT) on goods and services from the current 16 percent to 18 percent.

 This has been revealed in the Treasury’s most recent draft of its medium-term debt strategy for the years 2024–2035 and 2026–2027.

Treasury that Kenya’s VAT rate of 16% is significantly lower than that of its East African Community neighbors.

President William Ruto has been aiming to increase taxes to pay for his bottom-up economic program to help more Kenyans escape poverty in order to fulfill his post-election pledges.

“Currently, the VAT rate in Kenya is among the lowest within the EAC member States. The EAC Common Market Protocol foresees harmonization of taxes before EAC Monetary Union,” Treasury says in the draft document.

“However, studies have shown that low VAT rates accompanied with rationalized exemptions promote compliance and improve revenue collections,” it adds.

“In this respect, the Government will review the VAT rates as well VAT exemptions and zero rating.”

If the proposal sails through, the Kenya Kwanza administration is also planning to increase excise duty on spirits and other products with higher alcohol content to discourage consumption.

“This will be informed by quantitative analysis to determine the optimal tax rate that will be applicable to each alcoholic product,” Treasury says.

Users of tobacco products will not be spared either, as the state seeks to harmonize the excise duty rate for the current categories of filtered cigarettes, non-filtered cigarettes, and other tobacco products.

“Given the negative health externalities of these products, the rates will be based on the extent of the externalities as well as recommendations of the ongoing EAC partner states study.”

Sugar-based non-alcoholic beverages taxes will also be reviewed under the proposed tax regime as part of the government’s mission to prevent obesity and diet-related non-communicable diseases.

Treasury is calling on Kenyans to submit their recommendations on the proposals by October 6, 2023.

Brace yourself for more pain as the Treasury proposes an increase of VAT tax to 18 percent