Treasury hints at higher taxes to fund Sh4.4tn 2025-26 budget

Kenyans should brace themselves for higher taxes in the next financial year as the government seeks to cut on borrowing, amidst a rise in the 2025-26 budget to Sh4.2 trillion.

This is up from the Sh3.9 trillion spending plan for the current financial year ending June 30. Initially, the ‘Hustler Budget’ for the 2025-26 financial year starting July 1, was set at Sh4.5 trillion before Cabinet reduced it to Sh4.2 trillion as approved last Tuesday.

Treasury Principal Secretary Chris Kiptoo yesterday said the government has no luxury to borrow despite positive credit ratings by global firms, which gives it a clean bill of health and out of debt distress.

Last month, Moody’s revised Kenya’s credit outlook to ‘positive’’ with the global credit rating agency citing potential ease in liquidity risks.

The country’s debt stood at Sh10.8 trillion as of September last year, Central Bank of Kenya data shows, with allocation for payment of public debt-related costs expected to increase from Sh1.34 trillion in 2024- 25 to Sh1.60 trillion in 2025-26.

“We do not have the leisure to borrow more,” Kiptoo said yesterday during the fifth Diamond Trust Bank (DTB) Economic and Sustainability Forum, in Nairobi.

Treasury has since set a higher target for Kenya Revenue Authority, which is expected to collect Sh2.8 trillion in taxes, up from the projected Sh2.6 trillion in the current financial year.

“Expenditure pressures are increasing….Kenyans are reluctant to be on the side of revenue because when we talk about tax, you hear people saying we are overtaxed, this is a conversation that we need to have because we can’t have our cake and it eat, if we are to run a budget that is approved then resources have to be raised, and we can only raise resources by raising revenue or borrowing,” Kiptoo said.

He pegged the higher spending plan to among others, recurrent expenditure that has been pushed by salary demands.

“Teachers want more salaries, universities dons and other areas we have had to accommodate. We are now talking of a budget of Sh4 trillion and yet revenues are not moving as they should. We have to really balance,” he said.

The Sh4.2 budget will be the highest in the country’s history if approved by Parliament, with Sh3.196 trillion set to go towards recurrent expenditure, Sh725.1 billion to development expenditure, Sh436.7 billion to counties and Sh5 billion to the contingency fund.

The Executive has been allocated Sh2.494 trillion; Judiciary (Sh25.749 billion) while Parliament is set to get Sh42.488 billion.

The government plans to finance the budget mainly through tax revenues, including income tax, which affects payslip, and value-added tax, which impacts the prices of basic commodities.

Total revenue including appropriation-in-aid, which refers to revenues collected by government entities for the specific services they provide, is projected to increase to Sh3.386 trillion, up from the Sh3.066 trillion projected for this year.

This sets the budget deficit at Sh831 billion which can only be bridged through borrowing, a move that Treasury plans to go slow on, as it plans to cut the deficit to 4.3 per cent of the GDP, from 4.9 per cent this year.

It is now a wait and see as government mulls the increase in taxes after last year’s efforts by to raise an additional Sh344.3 billion through the Finance Bill 2024 was met by countrywide protest, as Kenyans decried over taxation.