As new Treasury Secretary John Mbadi took office hours after being sworn in at State House in Nairobi, focus has shifted to a series of promises he made during his vetting process.
Among the pledges Mr Mbadi made when he confirmed his approval of the loan last Saturday were promises to impose non-controversial taxes to reduce Kenya’s appetite for loans and to ensure that each loan is tied to a viable project.
Mr Mbadi, an accountant by profession, took over as prime minister from Njuguna Ndung’u, who was part of the government that fell victim to youth-led protests since June 18.
Formal workers and businesses have borne the brunt of the increased taxes, while the informal sector has also been targeted in an aggressive tax campaign that experts warn is causing further damage to the economy.
“The focus has been that we should change tax rates, raise taxes, impose new taxes, but I don’t think that should be the solution.
“The solution to tax mobilization must target the tax collector,” Mr. Mbadi told lawmakers.
Despite a raft of new taxes introduced in July last year, the Kenya Revenue Authority has failed to meet its target of generating Sh267 billion in revenue in the 2023/24 financial year, shifting focus to the rationale behind the tax hike.
However, given the high levels of debt pressure, raising taxes offers an easier path for Mr Mbadi, but it could lead to further public anger.
Kenya is also facing the issue of increasing loan commitment fees amid concerns that government entities and ministries are applying for loans without fully conceptualising projects.
Commitment fees – money paid for loans that have not yet been drawn down – amounted to Sh1.44 billion in the year to June 2023, highlighting the huge task ahead for Mr Mbadi in his efforts to ensure the loans are drawn down quickly.
Concerns have been raised that the Treasury approves loans to a range of government ministries and agencies even before projects are completed, and sometimes before land has been acquired for key projects.
Mismanagement has also eaten into large chunks of the loans Kenya has received in recent years, leaving Mr Mbadi facing another hurdle in fulfilling his promise to ensure the economy fully benefits from the loans through the intended project.
Mr Mbadi’s promise to make tax compliance cheaper and easier is another weighty issue likely to prompt a fresh push by groups such as alcohol manufacturers who have been denouncing a new directive on excise duty shifting since last year.
Since July last year, alcohol manufacturers have been required to remit excise tax within 24 hours, a requirement that has forced some to rely excessively on short-term loans to comply, creating an administrative and operational nightmare for businesses.
This requirement represents a departure from the past where companies were required to make remittances by the 20th of each month.
Although debt payments now eat up 73% of regular tax collections in a fiscal year, we know little about the details of the loans.
The promise to publish the debt register with all the details is another promise by Mr Mbadi amidst great doubts about whether this will be fulfilled.
Mr Mbadi also intervened in the emotional debate over how ministries and parliament should address Kenyans’ views on new taxes.
Kenyans continue to rail against high taxes, views that have been strongly rejected by ministries and parliament.
Mr Mbadi’s pledge to ensure public participation in the tax debate will require a delicate balance as the National Treasury is likely to seek to impose more taxes in an attempt to raise revenue, a push that has recently seen strong opposition from Kenyans.
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