President William Ruto's administration has devised a plan to introduce new taxes, including a road tax, a motor vehicle circulation tax, and changes to excise and value-added tax (VAT) if the High Court blocks the Finance Act of 2023.
This contingency plan was disclosed to the International Monetary Fund (IMF) as a means to fund the Sh3.68 trillion budget in case the current tax-raising measures face obstacles in court.
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The motor vehicle circulation tax is a type of road tax that motorists would have to pay to use public roads. Its calculation depends on various factors, such as the vehicle's value, engine capacity, and seating capacity.
The Treasury aims to present a package of legislative changes to Parliament by the end of October to achieve the Sh2.57 trillion ordinary revenue target for the current financial year and prevent further debt accumulation.
The IMF supports this plan, urging the government to adopt these contingency measures to maintain fiscal consolidation and reduce Kenya's debt vulnerabilities.
However, the new taxes may lead to public discontent, including a doubled VAT on fuel at 16 per cent, affecting even more taxpayers. Despite the potential for protests over the high cost of living and unpopular taxes, the IMF advises the Ruto administration to stay committed to the proposed taxation measures and continue reforms.
In recent times, street protests have erupted in major towns across Kenya, challenging the government's taxation and cost of living policies. The IMF acknowledges a medium-level political risk and cautions that this unrest could have a moderate impact on the economy.
The Kenyan Revenue Authority (KRA) recently fell short of its revenue target by Sh107 billion, potentially prompting the Treasury to explore new tax measures to meet financial goals.
The IMF has approved significant financing for Kenya, emphasising the importance of removing subsidies and implementing new taxes to reduce the country's reliance on debt.
Despite the suspension of the Finance Act 2023 by the High Court, the Ruto administration remains steadfast in its intention to implement the proposed taxation measures, including a 1.5 per cent housing levy on workers' gross pay and the 16 per cent VAT on petroleum products.
Chief Justice Martha Koome has appointed a three-judge bench to hear the case challenging the implementation of the Finance Act 2023 after its suspension. Senator Okiya Omtatah, one of the petitioners against the Act, has also applied to have the Energy and Petroleum Regulatory Authority cited for contempt of court for disregarding the High Court's suspension and applying the 16 per cent VAT on fuel prices.