Why taxing Kenya's super-rich could raise Sh129.3b

Kenya is targeting fairer taxation; however, it strongly relies on VAT and other consumption taxes that burden the poor, while the wealthy hold most of the country’s wealth. 

For this reason, the country has perennially been faulted for operating separate economic systems: one for the wealthy, who enjoy access to land, political protection, and minimal taxation, and another for ordinary citizens, who pay high taxes on basic goods and income while receiving fewer public services.

In 2024, Kenya’s Tax Expenditure Report recorded a rise in domestic VAT expenditure to Sh306.23 billion, consisting of Sh172.08 billion in exemptions and Sh134.16 billion in zero-rated supplies.

A report by the Institute of Public Finance and Oxfam Kenya estimates that taxing Kenya’s super-rich could raise $1 billion (Sh129.3 billion), but this is difficult because their wealth is hidden, laws are weak, data sharing is limited, and the wealthy can resist reforms. The report argues that introducing a wealth tax in such an environment requires more than just a legal enactment.

“These funds could significantly bolster public service delivery and poverty reduction efforts. However, the path to wealth taxation is neither simple nor straightforward. This is because most of the high-net-worth individuals’ wealth is held in often opaque assets,” the report states.

The report, which assesses Kenya’s readiness to introduce a wealth tax, points out that such a step demands political courage, institutional readiness, and genuine public engagement. Furthermore, there needs to be an acknowledgement of the existing weaknesses in Kenya’s tax system. 

The state has been challenged to begin the conversation around a wealth tax with a candid acknowledgement of the system’s flaws: from poor design and structure of new taxes, weak enforcement and compliance data systems, to high levels of public distrust and elite influence.

According to the report by the Institute of Public Finance and Oxfam Kenya, a well-designed wealth tax holds considerable potential to promote economic justice in Kenya by addressing the widening gap between the richest and the indigent.

“Wealth taxes are easy to justify in theory but difficult to sustain in practice. Kenya cannot tax what it cannot see,” the IPF noted.

The report recommends that, before establishing a wealth tax, Kenya should prioritise the creation of a centralised and comprehensive wealth database that captures granular information on various asset classes and ownership structures. “This should include data on owners of real property, rental income and mortgage obligations, cryptocurrency and digital assets, securities such as stocks, bonds, and mutual funds, as well as domestic and foreign bank account balances,” the report reads in part.

It also recommends that the wealth database should encompass beneficial ownership information, including trusts and nominee arrangements. As such, the database needs to be integrated across key registries to form the evidentiary foundation for wealth assessment and facilitate efficient enforcement and administration of wealth taxation. The report further lays out that the country should also invest in the development of protocols and mechanisms for cross-border data exchange to enhance transparency.

Introducing a voluntary disclosure program, which encourages early, penalty-reduced asset declarations, could play a crucial role in boosting compliance and trust by encouraging taxpayers to self-declare their assets before the commencement of wealth taxation.

The Kenya Revenue Authority (KRA) has been advised to protect taxpayer data by following privacy laws, limiting data use, securing storage, and ensuring transparent oversight.

“As Kenya gradually builds its administrative and data infrastructure, it should concurrently undertake incremental reforms to existing wealth-related taxes,” the “Tax the Rich” report read in part.

Civic actors have been implored to be at the forefront in shaping the national tax agenda on the adoption of a wealth tax through proactive advocacy on its significance in redistributing wealth and addressing inequality. The research paper, “Tax the Rich: Can Kenya Get Wealth Taxation Right?”, examines four key factors—tax design flaws, weak enforcement, risk of wealth flight, and political resistance—comparing global lessons to Kenya’s context, and highlights that there is little research on how a wealth tax could work specifically in Kenya.

With a history of new taxes often failing due to poor design and equity issues, leading to court challenges and public rejection, the report shows that a wealth tax must be carefully and clearly structured to succeed in Kenya.

According to the report, several proposed taxes, such as the minimum tax, affordable housing levy, and digital assets tax, have been struck down because they lacked clear structures, ignored equity considerations, or failed to account for practical implementation realities.

The report stipulates that exemptions are important in ensuring fairness and economic balance. 

“Well-designed exemptions act as equity tools that soften harsh impacts on certain groups, protect productive assets, and recognise different socio-economic realities. If crafted clearly, they prevent a wealth tax from hurting smaller businesses or households that are asset-rich but cash-poor,” the report read.

It notes, however, that poorly designed exemptions can easily be abused, undermine progressivity, and allow the wealthy to avoid taxation.