IMF asks Kenya to broaden tax base ahead of December talks

IMF Managing Director Kristalina Georgieva, President William Ruto, and Chancellor Friedrich Merz arrive at a meeting in Évian, France, on June 17th. [AFP]

The International Monetary Fund (IMF) has urged President William Ruto's administration to broaden Kenya's tax base rather than raise rates.

The warning comes at a time when the IMF says Kenya is facing significant fiscal and debt crises that have compounded the cost-of-living burden on Kenyans, a burden critics say Ruto's administration has deepened with a heavy load of taxes and levies.

The IMF says Kenya needs a multi-pronged approach rather than raising taxes alone.

Those measures - widening the tax base, trimming exemptions and tightening compliance, coupled with more targeted social protection are aimed at easing the burden on Kenyans, the IMF said, stressing that fiscal consolidation must not come at the expense of the most vulnerable.

"We assess that Kenya does face significant fiscal and debt-related challenges," IMF Communications Director Julie Kozack said at a scheduled briefing in Washington.

"And addressing those challenges will require a credible, balanced, and equitable fiscal consolidation, supported by measures not only on the revenue side, but also on the spending side. So, they'll need a balanced approach."

On taxation, she noted: "Our focus or recommendation is that there should be a focus not so much on increasing tax rates, but on broadening the tax base. So making sure that everybody who's supposed to be paying pays, reducing tax exemptions, and strengthening tax compliance. So those are ways to mobilise domestic revenue, but in a way that doesn't increase tax rates."

She also called for "overall greater fiscal transparency and more targeted social protection aimed at protecting the most vulnerable groups in Kenyan society."

“The other thing that we are recommending is overall greater fiscal transparency and more targeted social protection aimed at protecting the most vulnerable groups in Kenyan society,” she said.

The IMF guidance comes two years after deadly protests forced President Ruto to withdraw the controversial Finance Bill 2024.

Ruto recently said the majority of the bill's measures had subsequently been passed into law, telling a church gathering in Mwingi last week that "we eventually passed all the clauses of the Finance Bill because there was nothing wrong."

With the August 2027 general elections approaching, the cost of living has become the issue that defines Ruto's political survival, and it is deteriorating.

Annual inflation accelerated to 7.3 per cent in October from 6.8 per cent in September, driven by a 17.1 per cent jump in transport costs, a 10.2 per cent rise in food and non-alcoholic beverages, and a 3.7 per cent increase in housing, water, electricity and fuel.

Those three categories account for over 57 per cent of the weight across the 13 major expenditure divisions, meaning the pain is concentrated squarely on necessities.

Kerosene has soared 41.6 per cent over the past year, potatoes 34.9 per cent, cabbages 29.1 per cent, and a matatu fare from Karbanet to Nakuru 30 per cent.

A litre of petrol has jumped 22.8 per cent to Sh227.85, and diesel 32.5 per cent to Sh228.77.

Opposition leaders have seized on a growing list of taxes and levies as proof that the administration is squeezing households already stretched by food and fuel prices.

DCP leader Rigathi Gachagua has called for the Affordable Housing Levy to be suspended and PAYE bands cut, arguing that "a punitive and unpredictable tax regime is one of the principal causes of the high cost of living."

He says workers lose between 45 and 50 per cent of their monthly income to taxes and statutory deductions.

The IMF's debt warning echoes one from Controller of Budget Margaret Nyakang'o, who has said debt servicing absorbs 71 per cent of the revenue, leaving just 29 per cent for salaries, services and development.

 "The impact is that we must keep borrowing to stay afloat," she told MPs. "A wish for us not to borrow may not be feasible at this time."

Public debt climbed to Sh13.475 trillion in August, a 54.9 per cent jump since Ruto took office in September 2022, equal to 72.3 per cent of GDP in nominal terms, well above the 55 per cent anchor Parliament approved.

Mandatory spending, including debt repayments, is projected to consume 94.9 per cent of ordinary revenue in 2027/28, according to Treasury's draft budget policy statement.

Interest payments alone will absorb 42 per cent of ordinary revenue in 2026/27, up from 14.7 per cent in 2013/14.

Kozack reiterated the IMF’s earlier call for "overall greater fiscal transparency."

The BrettonWoods institution has long pushed Nairobi to widen its debt reporting to capture pending bills, securitisation funds and non-guaranteed State corporation loans, a change Treasury has resisted.

The Ethics and Anti-Corruption Commission has previously also warned that State capture has hollowed out oversight institutions, with public budgets, debt instruments and procurement systems manipulated for private enrichment.

That dispute has frozen talks on a new IMF programme after the previous $3.6 billion (Sh468 billion) deal expired in April 2025 without disbursing a final Sh109.8 billion tranche.

An IMF mission will visit Nairobi in early December for Article IV consultations, and a new programme with the fund will be part of the discussions, Central Bank of Kenya Governor Kamau Thugge said earlier.

On Mashujaa Day, President Ruto proposed exempting workers earning below Sh32,333 a month from PAYE, removing stamp duty on land transactions valued under Sh1 million, and scrapping the 25 per cent import duty on mobile phones, measures designed to put money in voters' pockets before the election.

The opposition’s alternative, suspending the housing levy and cutting PAYE, is their answer to the same burden Ruto is trying to address with exemptions.