The National Treasury has yet to clarify the status of its earlier commitments to tax reforms aimed at improving fairness and predictability, including proposed reductions in value-added tax (VAT) and corporate income tax.
These reforms were embedded in the Medium-Term Revenue Strategy (MTRS), a framework now entering its final year in the fiscal cycle beginning July 1, 2026. Key proposals under the plan also included a revision of Pay As You Earn (PAYE) rates for low-income earners, which many had anticipated would feature in the 2026/27 budget. However, the proposals were notably absent from Treasury Cabinet Secretary John Mbadi’s budget statement presented to Parliament.
Tax experts have criticised the omission, arguing that it weakens policy certainty and dampens investor confidence. Analysts at PwC noted that the final Finance Bill under the MTRS represents a critical opportunity to implement long-promised reforms, warning that delays undermine predictability in Kenya’s tax environment. They further observed that stable and transparent tax frameworks are increasingly important for competitiveness, particularly in a region where neighbouring economies are perceived as offering more consistent policy direction.
The MTRS, adopted in October 2023, was designed to overhaul Kenya’s tax system by improving revenue forecasting, strengthening tax administration, and aligning policy with emerging business models while building trust among taxpayers. Among its flagship proposals was a reduction in corporate income tax from 30 per cent to 25 per cent, intended to attract investment and enhance Kenya’s appeal to foreign investors.
Current rates in Kenya remain above global and regional averages, with corporate tax standing at 30 per cent compared to a global mean of about 23 per cent and an African average of 29 per cent. Critics of the existing structure argue that the higher rate encourages tax avoidance and discourages compliance.
The strategy also recommended lowering VAT from 16 per cent, on the basis that reduced rates combined with fewer exemptions could improve compliance and ultimately boost revenue collection.
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However, implementation has repeatedly stalled amid political resistance and public pushback. The disruption following the 2024 Finance Bill protests forced the withdrawal of several proposals, highlighting the sensitivity surrounding tax reforms. Legislative resistance has also slowed efforts to restructure VAT exemptions, particularly on essential goods such as pharmaceutical inputs and animal feed.
Despite these setbacks, the Treasury has succeeded in pushing through select reforms, including changes to excise duty based on alcohol content, higher levies on gambling activities, and increased taxation on products linked to public health concerns such as sugary beverages and coal.
Rising fiscal pressure has also complicated the government’s reform agenda, with persistent shortfalls in revenue collection forcing a reassessment of planned tax cuts. Treasury estimates previously suggested that lowering PAYE rates for low-income earners and raising the tax-free threshold could reduce annual revenue by as much as Sh35 billion, raising concerns over fiscal sustainability.
