The National Treasury is suggesting the implementation of additional taxes as President William Ruto’s administration seeks to secure extra funding for his ambitious projects. In the Draft Medium-term Debt Strategy for the years 2024-25 and 2026-27 by the Kenya Kwanza government, several significant tax adjustments are proposed.
One key aspect of these proposed tax revisions is the alignment of Kenya’s Value Added Tax (VAT) with that of the East African Community (EAC) member states. Currently, Kenya has a VAT rate of 16 percent, while most EAC states maintain an 18 percent rate. The National Treasury aims to bring these rates into harmony.
Additionally, the National Treasury plans to reintroduce excise duties on alcoholic beverages and cigarettes after a brief hiatus. In the 2023 Finance Act, the government refrained from imposing extra taxes on these products. The proposed changes involve standardizing excise rates for filtered and non-filtered cigarettes as well as other tobacco products. For alcoholic beverages, the excise duty will be linked to their alcohol content.
Kenyans have until October 6, 2023, to provide feedback on these Treasury proposals. Currently, the taxation of alcoholic products in Kenya considers factors such as consumer behavior, product value, consumption volume, and alcohol content. To streamline this taxation approach, the government plans to shift towards basing taxes on alcohol content, in line with EAC standards.
The National Treasury also notes that it will raise excise duties on spirits and high-alcohol-content products to discourage their consumption due to associated health risks. These adjustments will be guided by a quantitative analysis aimed at determining the optimal tax rates for each alcoholic product.
Regarding excise duty on cigarettes and other tobacco products, the National Treasury intends to standardize the excise duty rates across filtered cigarettes, non-filtered cigarettes, and other tobacco items. This move is driven by international best practices and aims to promote fairness in taxation.
Furthermore, the Treasury underscores its commitment to considering the negative health impacts of these products and will set rates based on the extent of these negative effects, as well as recommendations from an ongoing study conducted by EAC partner states.