Kenya tax bill may prove an unpopular compromise

Significance

With an ambitious development agenda to fund amid mounting debt, and under pressure from the IMF to rationalise revenues, the government aims to increase fiscal space with a set of long-overdue tax and administrative reforms. However, implementing the proposed measures could trigger political unrest.

Impacts

• If parliament overrules the fuel tax proposal, VAT on other goods could be increased from 16% to 18% to cover the fiscal shortfall.
• Even with a tax on fuel, the IMF could reject a new arrangement if interest-rate caps on commercial lending are maintained.
• External borrowing requirements of almost 3 billion dollars will keep the government engaged with the Fund.