Hard times ahead as Ruto’s CS hints at an imminent tax increase

National Treasury CS hints at an imminent tax increase to spur economic growth just after the passing of the controversial Finance Act 2023.

According to Cabinet Secretary Prof. Njuguna Ndungu, Kenyans may soon see another increase in taxes to fund the nation’s development goals and boost economic growth.

This is in response to concerns that the nation’s development ambitions and present tax payments won’t be able to support significant economic growth.

In his remarks on Friday, August 11, at a retreat that committees from the National Assembly and officials from the National Treasury, Ndung’u stressed the importance of Kenyans preparing for the potential of increased taxation 

He asserted that this action is essential to promoting economic expansion and advancing the government’s development goals.

Ndung’u pointed out that the country’s prospects for major economic growth are dimmed by the fact that private sector tax contributions are still minimal. 

He emphasized the necessity of increasing domestic revenue, pointing out that relying on debt and borrowing from outside sources does not result in the tangible growth needed for sustainable progress.

“We need to raise revenue. Taxation provides the basis for growth, reliance on debt and borrowing on other people’s savings will not yield tangible development, hence the need to raise revenue from domestic sources,” a statement from Treasury read in part.

According to the Treasury, taxes offer the fundamental framework for growth, and it is crucial to earn revenue domestically rather than relying on foreign sources.

The CS noted that while the idea of higher taxes might be unsettling, they serve as the cornerstone for investment, infrastructure growth, and overall economic growth. The Kenyan tax system is progressive, meaning that the amount of taxes paid corresponds to one’s income.

Contrary to this call, economists would assert that consumption taxes are regressive and a deterrent to economic expansion. They link this in the long term to low revenue collection.

In the face of potential financial strain, Ndung’u offered a glimmer of hope, projecting a 5.5 percent growth in the Kenyan economy for the year 2023. 

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This optimism is attributed to the anticipated recovery of the agricultural sector, which was hit hard by a drought in 2022. Additionally, the reopening of international tourism is expected to contribute to the growth trajectory.

The services sector is considered the driving force behind Kenya’s Gross Domestic Product (GDP). The CS also emphasized the positive impact of increased government investment in infrastructure projects, which are poised to accelerate economic growth.

Despite these positive forecasts, risks that could hamper projected growth abound and must be addressed. 

As part of its strategy for more prudent resource management, the Treasury has initiated a review of donor-funded projects that have stagnated. 

The aim is to determine the viability of these projects and their contribution to national development.

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