Kenya government to raise VAT to 18 per cent

NAIROBI, Kenya

The Kenya National Treasury is proposing the introduction of more taxes as President William Ruto's administration seeks additional revenue to fund his ambitious programmes.

In the Kenya Kwanza government's Draft Medium-term Debt Strategy for the period 2024-25 and 2026-27, the National Treasury proposes a raft of major tax changes.

Some of the highlights of the proposed tax reviews will be the harmonization of the country's VAT with the East African Community member states.

Most of the EAC states have VAT at 18 per cent while Kenya charges 16 per cent.

At the same time, the National Treasury is proposing to put alcoholic beverages and cigarettes on the radar again with excise duty after a short reprieve.

The government did not impose additional taxes on the products under the Finance Act, 2o23.

Excise rate for filtered cigarettes, non-filtered cigarettes and other tobacco products will be harmonised while excise duty on alcohol will be pegged on alcohol content

Kenyans have until October 6, 2023, to submit comments on the proposals from Treasury.

Currently, taxation of alcoholic products is based on various criteria including, consumer behaviour, value of the product and the volume of consumption as well as alcohol content.

''In order to streamline the taxation of alcoholic products, over the strategy period, the government will review the basis of taxation to the alcoholic content of the product taking into consideration the harmonisation with EAC region,'' the proposals read in part.

The National Treasury says in the draft strategy paper that the government will increase exercise duty on spirits and higher alcohol content products to discourage their consumption as they pose higher health risks.

''This will be informed by quantitative analysis to determine the optimal tax rate that will be applicable to each alcoholic product,'' reads the draft medium-term debt strategy.

Regarding exercise duty on cigarettes and other tobacco products, the National Treasury proposes to harmonise exercise duty rate across filtered cigarettes, non-filtered cigarettes and other tobacco products.

The National Treasury says it will take into account international best practices and promote fairness.

''Given the negative health externalities of these products, the rates will be based on the extent of the externalities of these products as well as recommendations of the ongoing EAC partners states study,'' the treasury says.