The National Treasury is proposing to increase the value-added tax (VAT) on products and services to 18 percent from the current 16 percent.

In its latest Draft Medium-term Debt Strategy for 2024/25 and 2026/27, the Treasury argues that Kenya’s VAT percentage of 16 percent is much lower in comparison to neighboring countries in the East African Community.

President William Ruto has been looking to increase taxes for his bottom-up economic program to help more Kenyans escape poverty to fulfill his post-election pledges.

“Currently, VAT rate in Kenya is among the lowest within the EAC members States. The EAC Common Market Protocol foresees harmonisation of taxes before EAC Monetary Union,” Treasury says.

“However, studies have shown that low VAT rates accompanied with rationalized exemptions promote compliance and improve revenues collections,” reads the document.

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“In this respect, the Government will review the VAT rates as well VAT exemptions and zero rating.”

If the proposal persists, the Kenya Kwanza administration also plans to increase excise duty on spirits and other products with higher alcohol content to discourage consumption.

“This will be informed by quantitative analysis to determine the optimal tax rate that will be applicable to each alcoholic product,” Treasury says.

Users of tobacco products will not be spared either, as the state seeks to harmonize the excise duty rate for the current categories of filtered cigarettes, non-filtered cigarettes, and other tobacco products.

“Given the negative health externalities of these products, the rates will be based on the extent of the externalities as well as recommendations of the ongoing EAC partner states study.”