Is the Finance Bill 2025 about boxing or dancing?

Until last year, Finance Bills passed through the system without any fanfare or violence. Some Kenyans had not even heard of the Bill, which gives the government authority to raise revenues once it’s signed into law.

The Bill has now been put under a microscope, scrutinised clause by clause and the implications for our pockets and corporate bottom lines. 

The Bill proposes to amend the Income Tax Act (Cap. 470), the Value Added Tax Act (Cap. 476), the Excise Duty Act (Cap. 472), the Tax Procedures Act (Cap. 469B) and the Miscellaneous Fees and Levies Act (Cap. 469C)

The Bill also amends the Stamp Duty Act to exempt from stamp duty the transfer of property by a company to its shareholders as part of an internal reorganisation, says the National Assembly. The word deleting appears 123 times and inserting 56 times in the document, creating plenty of work for tax consultants.

The predominance of the Finance Bill should not surprise us. We are all homo economicus and the 2022 political campaigns set the stage for that. The hard economic times after the polls made us more conscious of the economic implications of the decisions made by our representatives. 

The Finance Bill also made many citizens realise that the government derives its power from the purse, the money collected from taxes or borrowed on our behalf. 

National debt

The perennial question for the government is where and how to get the money. These questions preoccupy us too, either as individuals or families. Do we run our lives with savings, debts or help from others?  The Kenya Kwanza government dreamt of paying national debt through more and higher taxes. Few can deny it’s the right thing to do. The question has always been, which is the right way to do that? 

One was to raise the tax rate to get more from the existing taxpayers. It was the easiest, more so for the formal sector, with all the data and records easily available.

Compare a teacher and a hawker. Who is easier to tax? The next approach was to get new taxes, tax what was not taxed before, such as airtime, fuel, foodstuffs among others. Another way was to come up with new levies, less contentious than taxes. 

Widening the tax bracket was always an attractive option. How to do that in a country where 80 per cent of the businesses are informal is an open question. We all must remember that higher taxes discourage consumption and deplete value-added taxes and corporate taxes. How elastic are the various taxes? Which tax rate would give us the highest tax revenue?Taxes cannot cover all the government’s obligations. Borrowing has to bridge the gap. The government borrows internally and externally through Treasury bonds and bills.

It uses a higher interest rate to attract money from lenders. More money comes from donations by other countries and non-governmental organisations, often tied to specific programmes and projects. Remember the USAID shock? 

Curiously, we always have a deficit, more expenditure than revenues. 

Political backlash

Politics stops or keeps us away from a balanced budget. Reduction in expenditure would mean stopping projects or sacking workers, and the political backlash thereof. That is why every government, despite its good intentions, continue running deficits.

What if we had a budget surplus? Imagine public participation on what to do with a budget surplus? Imagine lowering interest rates to discourage Kenyans from buying bonds and bills?

Imagine a Finance Bill that proposes lower tax rates or abolishing some taxes and levies? What of counties saying no to money from the national government?

It sounds utopian, but possible!

Such a golden scenario should be part of our long game. It should start with citizens “seeing” tax revenues, improving the delivery of services from education to health. Today, the highest percentage of tax revenue is “invisible,” paying salaries and debt.

And less talked about is corruption and waste. I have asked why there are no government Vitzs or Mazda Demios. Is a big car the only way to show one has power? Why do police still collect Sh50 from matatus? And jobs on sale? How can our economy grow when doing nothing is more profitable than sweating? 

How about being kinder to taxpayers? Did I hear PINs are suspended in tax disputes? Can you deny a cow hay to get more milk? Why should entrepreneurs fear KRA so much? 

Clearly, tax will remain the key source of government revenues. We better streamline our taxes, making it easier to pay and more predictable.

Debt supplement tax. We have not defaulted so far, good for our country. But we must improve on our image and credit rating. If we streamlined our taxes, our debts would be reduced. That will not be easy. Debt is a big business for banks, shylocks, IMF (International Monetary Fund), World Bank and other stakeholders. They will resist any attempt to kill debt. Some argue even disciplines like finance will die without debt. 

The reality is that the government needs money through taxes from citizens who need government-supported services. The relationship is symbiotic, but it’s now seen as parasitic.

The government-citizenship relationship is mediated by taxes. The two should dance, not box!

Dancing should be through public participation, good tax policies, putting taxes to the right use and continuous improvement in running the government. Is Finance Bill 2025 about dancing or boxing? 

Last question ….“Why is debt not in the Finance Bill”?