Economy is lagging but we can still reduce taxes, Mbadi says

There is need to reduce Pay as You Earn Tax (PAYE) and other taxes levied on Kenyans by broadening the tax base, Treasury Cabinet Secretary John Mbadi has said. 

Speaking in Mombasa Wednesday during an accountants' forum, Mr Mbadi said this can be done in the next two years. He noted that the government can reduce PAYE while maintaining the Social Health Insurance Fund (SHIF) and affordable housing levies.

“Kenyans feel like they are overtaxed. Going forward, this is an issue we must address. We may leave SHIF and housing levy but reduce PAYE,” said Mbadi.

He stressed the government can broaden the tax base through enhancing personal income tax, rental tax and tax on Value Added Tax (VAT) while reducing PAYE.

“If we bring the personal income tax and enhance it and enhance rental income tax and collect the correct VAT because we are not paying VAT on a lot of goods, within one or two years we should be able to lower PAYE,” said Mbadi.

He admitted that Kenya's economy is chocking on lack of liquidity. Mbadi admitted that the country is faced with a myriad of economic problems that need sober decisions and systems to reduce corruption and enhance accountability.

While supporting affordable housing, Mbadi said the problem that Kenyans have with the project is taxation.

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“To a large extent, the problem is taxation. I also rejected it while in the opposition. I have lived in Kibra and now I believe those living in poor conditions should have a better chance in life,” said Mbadi.

While supporting the Finance Bill 2024, the CS asserted: “Finance Bill 2024 died because of poor communication. The tax proposals I introduced will be brought to parliament and all concerns will be discussed by the public.”

He denied knowing about the 'Adani deals' and said any other investor apart from Adani can undertake PPP to achieve the development goals.

He said although Adani has integrity issues across the globe, no one is talking about his positive attributes.

The CS noted that the performance of the manufacturing and construction sector has stagnated because of pending bills and high interest rates on loans charged by banks.

Mbadi said that there is need to allocate more resources in the manufacturing sector to unlock businesses.

“Construction sector has shown a negative growth. The private sector has not been able to invest due to high interest rates. The road constructions have also stalled due to pending bills. If we work on the two sectors, we will be good,” said Mbadi.

He said to generate jobs, the country needs an economic growth of eight percent. He noted that the Kenyan shilling has stabilised at 121 against the dollar with exports rising.

Mbadi said with the low inflation, the reserves have increased to $9.5 billion (Sh1.2 trillion). He said Treasury will be revamping the obsolete Kenya Revenue Authority (KRA) system.

He said the government needs to reduce the budget deficit by three per cent to reduce public debt which stands at Sh10.6 trillion.