Implementation of the African Continental Free Trade Area (AfCFTA) could see Kenya lose an estimated tariff revenue of Sh22.53 billion, Kenya Institute for Public Policy Research and Analysis has warned.
KIPPRA in a new study says that on full implementation of the treaty, Kenya will need to diversify its revenue streams in response to the anticipated loss in tariff revenue.
The public policy body says Kenya could diversify its revenue sources by exploring alternative taxation methods such as VAT and income taxes, increasing efforts to combat tax evasion, and expanding the tax base.
The institution further recommends that the government could closely monitor the impact of revenue loss and make necessary adjustments.
“At the same time, exports will expand within the region, particularly in countries where Kenya lacked functional trade agreements. Notably, sectors such as dairy product manufacturing experience a 0.02 per cent reduction in protectionism,” reads the report in part.
It says tariff liberalisation significantly lowers the prices of imported products, especially in categories such as other service activities and manufactured items.
The study says Kenya could explore opportunities to establish or strengthen trade agreements with other AfCFTA member States and regional economic communities.
“This could lead to mutually beneficial trade partnerships that help balance the potential losses from tariff liberalization,” KIPPRA said
KIPPRA notes that while the removal of tariffs is anticipated to enhance overall welfare, there might be segments of the population that could be negatively impacted.
This will call for enhanced implementation of strong consumer protection measures and transparent pricing.
“Implementing measures to cushion vulnerable communities from potential adverse effects, such as targeted social safety nets, will ensure that the benefits of trade liberalisation are more inclusive,” reads the report.
This study investigated the implications of AfCFTA on Kenya to assess the revenue, trade, price impacts, and welfare implications of AfCFTA on the east African nation.
