New KRA boss Muriithi wants outdated annual Finance Bill scrapped

Public finance experts have proposed radical changes to Kenya’s tax regime to ease compliance and improve the operating environment for businesses.

They want the National Treasury to do away with the annual practice of introducing new taxation measures through the Finance Bill, which, they said, would play a part in bringing about predictable taxation.

Among them is Ndiritu Muriithi, the newly appointed Kenya Revenue Authority (KRA) chairman, who noted that the clamour by Kenyans and businesses for a stable and predictable tax environment is a genuine concern.

He cited new tax measures that are introduced by the Finance Act every year as among the factors that disorient businesses and leave them unable to plan for the long term. 

His sentiments, a possible pointer to the direction that the government could be considering taking, come on the background of the rejection of the Finance Bill, 2024 following the countrywide anti-government protests in June.

While the protests forced the government to withdraw the Bill last year, Finance Bills have over the years introduced unpopular tax measures.

READ: Impact of Finance Bill withdrawal hits State revenues

Treasury is currently in the process of preparing the budget, with the expectations of a Finance Bill to be tabled in Parliament in June spelling out new or additional tax measures to help KRA grow tax revenues. 

Muriithi, a former governor of Laikipia, cited concerns that local firms have raised over the years that frequent changes in taxation are among the factors that make it difficult to do business in the country.

It is also among the factors that result in low tax compliance.

The KRA chairman, who spoke at a forum convened by the Institute of Public Finance, noted that the Finance Bill has traditionally been part of the budget-making process but added that the 2010 Constitution has since changed this process and the tax-raising measures should also change.

“The need for an annual Finance Bill is a historical thing. I do not see any technical reason why it should be done the way it is done other than the weight of history,” he said.

“(Historically), price adjustments were an annual thing when we had price controls. The Minister for Finance would come to Parliament and explain how prices would change…(some of them effective) from midnight (on the day the budget was read).”

He explained that then, the Treasury kept the budget-making process a secret, unlike today when the Constitution requires the Treasury to open up and involve Kenyans in the process that starts early in the financial year.

READ: Hits and misses in this year’s Finance Bill as economy hurts

Muriithi added that there is little point in keeping the relic that had made taxation unpredictable.

“Is there room to go for two years, three years, maybe even longer, during which not too much is changing? I think there is and that this is something that is desirable and that we ought to adopt,” he said.

“It is the debate that we should be having within government but also with (Kenyans) so that the frequency of change is manageable.”

He noted that even the Treasury documents such as the Budget Policy Statement and the Meditem Term Revenue Strategy have projections for several years ahead.

“The foundational thinking is that we should be looking at about five years as the period within which we are planning so that we increase certainty both in terms of government finances and the rest of the economy,” said Muriithi. 

The finance bills are supposed to help KRA to meet the tax revenue collection target set by the Treasury.

The taxman has a target to collect Sh2.6 trillion over the current financial year, with Treasury data indicating that it is already falling behind and will have to put in a lot of work over the coming months to meet the target.

KRA had collected Sh1.074 trillion in ordinary revenue as at December 31, 2024. Treasury in the draft 2025 Budget Policy Statement noted that all broad tax categories of ordinary revenue fell short of the respective targets.

Over 2025-26, the Treasury has given KRA a target of Sh3.018 trillion.

Muriithi spoke at a time when all eyes are on the Treasury to see the tax measures that it is likely to propose in the 2025 Finance Bill.

It is also at a time when Kenyans have increasingly taken a keen interest in new tax measures, with the general feeling being that they are heavily taxed while the government has failed in service delivery.

It is these sentiments that saw Kenyans protest last year against what they perceived as punitive tax measures contained in the Finance Bill 2024, which led to President William Ruto withdrawing the Bill.

Steve Okoth, a member of the public finance sector board at the Kenya Private Sector Alliance, said unpredictability in taxation has been due to the Treasury proposing tax measures without consulting Kenyans. 

“One of the issues that the private sector has been grappling with is the predictability of tax policy and ease of compliance…both of which result in significant pressures to the private sector but do not increase the tax yield,” he said.

Okoth noted that the events of June last year have been in the making for years as the Treasury continued to tax essentials, and the proposals have always sailed through Parliament.

“Last year, this country nearly burned because of the Finance Bill. It was not just about the Finance Bill, 2024, there was pent up frustration by Kenyans and businesses about how fiscal policy is developed and how tax administration is implemented,” said Okoth.

He said the problem has been Treasury mandarins proposing taxation on essential goods including food and raw material for manufacturing. 

“These are extreme taxation measures. These signals have been coming…and the problem is that people at Treasury are making mistakes.

“They sit in a room and make assumptions as to what tax measures to put in place without the benefit of any consultation or sufficient expert or professional insight.”

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“When you look at the massive size of the mistakes that they make, it is clear that there were no consultations or even expert insight. The drive is to institutionalise the policy-making process. We need to institutionalise technical capacity at Treasury in the development of fiscal policy so that the product that comes out is of good quality.”

Other bills

The chairperson of the National Assembly’s Committee on Finance and Planning, Kimani Kuria, noted that while his committee has been on the receiving end over high taxes proposed in finance bills, especially last year, Kenyans also needed to look holistically at the budget-making process.

He said that while the Finance Bill proposes measures to shore up tax revenues, other bills guide spending by the government. 

Kuria said if Kenyans scrutinised the Appropriations Bill, which proposes how much the government will spend over a financial year, and demanded that the government cuts unnecessary spending, it would not resort to high taxes in the finance bill.

“There are three laws that are passed at the same time. When we are talking about the Finance Bill, there is also the Appropriations Bill and the Division of Revenue Bill (sharing revenue between national and county governments). You hardly hear anything about it.

“The conversation is always based on the Finance Bill,” said Kuria, in what could turn the heat on other committees of the National Assembly including the Budget and Appropriations Committee.

“If we, as Kenyans, concentrated on the expenditure as we did on taxation we would hold the executive to account and ensure that money is appropriated where it is needed. For any government agency to receive a coin, it has to be approved by Parliament.”