Kenya, the economic and political beacon of East Africa, has become one of the most indebted countries on the continent. Indeed, the East African power’s total debt has surpassed Ksh 10 trillion ($69.3 billion) in June 2023. Last year in that very same period, Kenya’s national debt was about Ksh 8.59 trillion ($58.4 billion), according to the National Treasury and the Central Bank of Kenya (CBK).
According to Business Insider Africa, the National Treasury’s earlier predictions for the rate of debt building have been surpassed. For example, the Treasury predicted the country’s debt stock would be Ksh 9.412 trillion ($64 billion) at the end of June 2023 in its 2023 Budget Policy Statement. Moreover, the debt stock has already surpassed the $69.3 billion estimated in June 2024, reflecting the faster-than-anticipated growth of governmental debt and borrowing.
Kenyan taxpayers are likely to face heavier tax burdens in the near future for a few reasons. First, the need to finance the government’s ambitious development agenda; second, the rising cost of living, which is putting pressure on household incomes; and third, the need to reduce Kenya’s public debt, which is currently at around 70% of its GDP. Fourth, the pressure that the International Monetary Fund (IMF) has been putting on the Kenyan government to increase tax revenue in order to reduce its national debt.
Thus, the Kenyan government has already announced a number of measures to increase tax revenue, including introducing a new wealth tax on Kenyans with assets over Ksh 500 million; increasing the capital gains tax rate from 5% to 10%; and expanding the Value Added Tax (VAT) based to include more goods and services. Furthermore, the Kenyan government has also announced plans to widen the tax base by bringing more informal workers into the tax system.
The reality is that the increased tax burden is likely to have a mixed impact on the Kenyan economy. On the one hand, it will help the government to finance its development agenda and reduce its public debt. On the other hand, it will put additional pressure on household incomes, especially for low- and middle-income earners. This means that low-and-middle-income earners will have a reduced disposable income, which will dramatically lower their standard of living.
This heavy tax burden will bring additional consequences to the Kenyan taxpayer beyond having a reduced disposable income. It will increase their cost of living. Indeed, businesses may pass on the cost of the increased tax burden to consumers in the form of higher prices for goods and services.
Moreover, this tax burden will reduce investment. As a matter of fact, businesses may invest less in Kenya if they face a higher tax burden. This could lead to slower economic growth and job creation. And lastly, this tax burden will incentivize tax evasion, especially among the wealthy. Some taxpayers may try to evade taxes to avoid the higher tax burden. This could reduce government revenue and make it more difficult for the government to finance its development agenda.