List Of Mbadi's Budget Policies That'll Enhance Revenue Collection, Including Reduction Of Tax Rates

• The National Treasury launched the 2024/25 Budget Preparation Procedure, defining measures to enhance revenue collection
• Treasury Cabinet Secretary (CS) John Mbadi highlighted the medium-term revenue strategies that will reduce the budget deficit
• Among the policies are a reduction in tax rates, easing of interest rates, and a reduction in expenditure

TUKO.co.ke journalist Wycliffe Musalia has over five years of experience in financial, business, and technology reporting and offers deep insights into Kenyan and global economic trends.

Treasury Cabinet Secretary (CS) John Mbadi has unveiled the 2025/26 Budget Preparation Procedure.

What's the current Treasury budget deficit?

This came as the government struggled with an increased budget deficit, which hit KSh 767 billion in the current financial year.

President William Ruto rejected the Finance Bill 2024, plunging the Treasury into a revenue shortfall of KSh 170 billion more than the projected deficit of KSh 597 billion.

"Treasury intended to have a budget deficit of KSh 597 billion but now we have a deficit of KSh 767 billion, which is KSh 170 billion more than what we had planned, to actualize the fiscal consolidation policy," said Mbadi, during the launch on Monday, September 9.

How Treasury plans to cut budget deficit

Mbadi highlighted the medium-term revenue strategies his office will be undertaking to enhance the Kenya Revenue Authority (KRA) tax collection.

The CS noted that the fiscal framework defined in the Budget Preparation Procedure will be premised on the real GDP growth and retained inflation rate below the Central Bank of Kenya (CBK) mid-point target range of 5%.

"We target real GDP growth of 5.5% in 2025, maintaining inflation within the target range of +/-2.5% of 5%. We are currently within that range," he said.

Which medium-term policies will increase revenue?

1. Reduced interest rates

The CS projected interest rates to ease downwards and foreign exchange rates to remain stable over the medium term.

CBK reduced the base lending rate to 12.5% in August 2024 from 13%, citing the stability of the Kenya shilling in the foreign exchange market.

2. Increased revenue collection

The medium-term fiscal framework aims to gradually increase revenue to about 7% of the GDP in the financial year 2025/26.

In the previous financial year, KRA collected KSh 2.407 trillion, which was KSh 83 billion less than the revised annual tax revenue target.

3. Reduced tax rates

Mbadi noted that in the medium term, the Treasury will reduce tax rates to expand the tax base, enhance compliance, and increase collection.

He highlighted some of the taxes the Treasury will cut, including the 16% VAT and PAYE.

"We are going to reduce VAT from 16% to about 14%, corporate tax from 30 to 25%, PAYE and other taxes," he said.

4. Reduced expenditure

The CS proposed a reduction in total expenditure to below 21.5% of GDP.

Mbadi sounded a stern warning to accounting officers over increased spending.

The CS cited the austerity measures highlighted in the first supplementary budget, urging ministries and state departments to cut expenditures on hospitality, travel, and conferences.

"We came up with the supplementary budget at an early stage to cut expenditures in line with the projected revenue collection," Mbadi explained.

In August 2024, Mbadi proposed measures to cut over KSh 500 billion in annual tax refund expenditures, which he termed fictitious.

What to know about John Mbadi's economic policies

• The Treasury CS highlighted some measures he will take to fund the cash-strapped Exchequer, including reviving sections of the defunct Finance Bill 2024 and extending the tax amnesty programme.
• Speaking in Homa Bay on Thursday, August 29, Mbadi asked Kenyans to give him one year to revive the country's economy.

Proofreading by Otukho Jackson, a multimedia journalist and copy editor at TUKO.co.ke