Prime Cabinet Secretary Musalia Mudavadi faced questions during a recent Bloomberg TV interview about President William Ruto’s decision to raise taxes in Kenya despite alternative options for boosting government revenue. Journalist Kriti Gupta inquired why the government didn’t consider privatizing state-owned firms to increase income instead of imposing additional taxes.

Mudavadi explained that the tax hikes were part of a broader strategy to reduce reliance on debt and generate domestic revenue. He acknowledged that privatizing state-owned enterprises was a viable option but noted that it would take time to implement. Without the revenue from tax enforcement, the government would face significant fiscal challenges.

He stated, “Fiscal consolidation requires that we live within our means, and the privatization program will run in parallel. We lack the fiscal space needed, so we must raise revenue locally. This includes not only increasing taxes but also improving tax collection efficiency.”

President William Ruto’s administration has already introduced several new taxes in its first year to bolster state revenues. Notably, as of July 2023, employed Kenyans are required to contribute 1.5% of their income to a housing levy for the affordable housing project and a digital economy tax has been implemented. Additionally, the value-added tax on fuel has been raised from 8% to 16%.

The government has also initiated the process of leasing key state assets to private companies, starting with port facilities in Mombasa and Lamu. The goal is to attract substantial investments from private companies and generate significant revenue for the government through public-private partnerships. For instance, the lease of certain port assets is expected to unlock approximately Ksh1.46 trillion ($10 billion) at the port and attract Ksh44.5 billion ($304 million) worth of private investments at various ports.

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