Govt to Reduce PAYE, VAT in Major Tax Reforms

Treasury Cabinet Secretary John Mbaadi has  announced a major tax reform that will see the government adopt a new strategy of reducing the percentage of taxes Kenyans pay - as a way of boosting collection through a broader tax base. 

Mbadi said under his leadership, the Treasury will reduce VAT from 16% to 14%, cut corporate tax from 30% to 25%, and reduce Pay as You Earn Tax (PAYE). He did not give specifics on the changes that would be made on PAYE. 

The CS made the announcement while launching the National Treasury’s Medium-Term Revenue Strategy (MTRS) on Monday, September 9.

“I will surprise you. In the medium term, we want to reduce tax rates. We are not thinking of increasing tax rates. We are going to reduce VAT from 16% to about 14% . We want to reduce other taxes including corporate tax from 30% to 25% and even Pay As You Earn ( PAYE),” he said in his speech. 

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He added that his ministry was working on reforming the Kenya Revenue Authority (KRA) to collect more taxes.

"We must ensure that KRA is reformed to collect more. The reforms are already underway. The National Treasury has developed the medium term revenue strategy to enhance domestic revenue mobilization over the medium term,” he said in a statement. 

The new approach will mark a major turnaround in the government’s policy to tax collection, which has in the past decade focused on increasing taxes and introducing levies. 

The introduction of new and higher taxes has done little to increase the government’s revenues, with experts advising that beyond a certain point, higher taxes become a deterrent to economic growth as it increases cost of doing business and encourages tax evasion. 

The CS also revealed plans to encourage the public to submit proposals on some legislative reforms that could help improve the current economic situation due to the fall of the Finance Bill of 2024.

“We are barely managing. For the first time a finance bill was lost in this country and we are all aware. I will be issuing a circular tomorrow inviting the public's participation to submit proposals on some legislative reforms to improve our current economic situation. We are giving Kenyans up to 20th September 2024 to talk to us."

The Finance Bill 2024 was withdrawn in its entirety by President William Ruto following mass demonstrations by Kenyans. The bill proposed to raise the highest amount of new revenue in Kenya's history, targeting an ambitious Ksh330 billion.

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