No New Taxes as Government Prioritises Relief for Kenyans, Says Mbadi

The Kenyan government has announced a policy of no new taxes or increased tax rates in the upcoming 2026 Finance Bill, prioritizing relief for citizens amidst economic strain. This decision, articulated by Treasury Cabinet Secretary John Mbadi, reflects lessons learned from public outcry over the 2024 Finance Bill and emphasizes strengthening tax administration, improving compliance, and expanding the tax base rather than imposing additional burdens. The move signals a shift towards a people-centered fiscal strategy, aiming to boost revenue through efficiency and equity while adhering to constitutional principles of public participation in tax policy formulation. Practitioners should note the focus on compliance and potential shifts in enforcement strategies.

In a significant policy announcement, Kenya's Treasury Cabinet Secretary, John Mbadi, has declared that the government will not introduce new taxes or increase existing tax rates in the forthcoming 2026 Finance Bill. This decision, aimed at providing relief to Kenyans grappling with economic strain, marks a notable departure from previous fiscal strategies that often sought to bolster government revenue through new levies. The announcement underscores a commitment to a "people-centred approach" in budget crafting, placing the well-being of the ordinary citizen, or 'mwananchi', at the forefront of fiscal considerations.

This policy shift is particularly pertinent given the recent history of public discontent, notably the widespread protests that followed the 2024 Finance Bill. The government has explicitly linked this new direction to the need to "always listen to the voices of our citizens," acknowledging the importance of public participation in shaping legislative and fiscal policies. For legal professionals and tax practitioners, this development signals a critical juncture in Kenya's tax landscape, necessitating a thorough understanding of its implications for tax planning, compliance, and the broader regulatory environment.

Kenya's tax system is primarily governed by the Constitution of Kenya, 2010, which outlines the powers to impose taxes and mandates public participation in financial matters. Article 209 grants the national government the authority to impose income tax, value-added tax (VAT), customs duties, and excise tax, while Article 210 stipulates that no tax or licensing fee may be imposed, waived, or varied except as provided by legislation. The Public Finance Management Act, 2012 (PFM Act) further provides the framework for the effective management of public finances, emphasizing transparency and accountability.

Historically, tax policy in Kenya has been implemented through annual Finance Acts, which amend existing tax laws such as the Income Tax Act (Cap 470) and the Value Added Tax Act, 2013 (No. 35 of 2013). The process typically involves the National Treasury preparing a Budget Policy Statement (BPS) and subsequently a Finance Bill, which is then subjected to public participation and parliamentary review before enactment. Recent years have seen significant public engagement, particularly concerning the Finance Bill 2024, which faced considerable opposition over proposed tax increases, leading to its eventual rejection by the President. This backdrop of heightened public scrutiny and economic challenges, including high inflation and the cost of living, has evidently influenced the government's current stance on taxation.

The government's commitment to "no new taxes or increased tax rates" in the 2026 Finance Bill represents a strategic pivot, moving away from direct tax hikes as a primary revenue-generating mechanism. Instead, the focus is squarely on enhancing tax administration, improving compliance, and broadening the tax base. This approach aligns with the National Tax Policy's objectives to guide a progressive tax system, enhance revenue mobilization through efficiency, and foster a flexible fiscal space.

Legally, any changes to tax policy must be enacted through legislation, as mandated by Article 210(1) of the Constitution. Therefore, the proposals outlined by Treasury Cabinet Secretary Mbadi will need to be formalized in the Finance Bill 2026 and subsequently passed into law. The emphasis on public participation, explicitly referenced by Mbadi as a lesson from the 2024 Finance Bill fallout, is a constitutional imperative under Articles 10 and 201(a) of the Constitution and the Public Finance Management Act, 2012. This means that while the government may propose a "no new taxes" stance, the legislative process for the Finance Bill 2026 will still involve public consultations, allowing stakeholders to scrutinize the proposed measures related to tax administration and base expansion.

The strategy of broadening the tax base without increasing rates implies a more aggressive stance on identifying and bringing into the tax net individuals and businesses currently outside it or those under-declaring income. For instance, Mbadi noted that only 3.1 million employed Kenyans remit Pay As You Earn (PAYE) tax, despite millions more earning income. This suggests potential legislative or administrative measures targeting sectors with low compliance, informal economies, or those filing nil returns. The ongoing tax amnesty program, which waives penalties and interest for taxpayers who settle principal tax liabilities up to December 2023 by June 30, 2025, is one such measure aimed at boosting compliance and expanding the tax base. While the government has ruled out new taxes, it has previously considered other adjustments, such as changes to Capital Gains Tax (CGT) rates for specific investments and adjustments to employment benefits, which could still be part of future Finance Bills. The challenge for the government will be to achieve its revenue targets, projected to increase significantly, through these administrative reforms and base expansion, especially given the existing fiscal deficit and reliance on borrowing.

The Kenyan government's decision to forgo new taxes and tax rate increases in the 2026 Finance Bill signals a strategic shift towards a more citizen-centric fiscal policy, heavily influenced by recent public feedback and constitutional mandates for public participation. For legal practitioners, this means a continued emphasis on understanding the nuances of tax administration and compliance, as the Kenya Revenue Authority (KRA) is expected to intensify efforts in these areas to broaden the tax base. Clients should be advised to review their tax compliance frameworks rigorously, particularly concerning undeclared income or under-remitted taxes, and to leverage existing mechanisms like the extended tax amnesty.

Looking ahead, practitioners should closely monitor the legislative process for the 2026 Finance Bill for specific proposals on enhancing tax collection efficiency, promoting equity, and expanding the tax net. While the immediate pressure of new taxes may be alleviated, the underlying drive for increased revenue generation remains, shifting the focus to stricter enforcement and wider inclusion of taxpayers. This period presents both challenges and opportunities for businesses and individuals to engage proactively with tax authorities and ensure robust compliance in a dynamically evolving fiscal environment.