Mbadi: There will be no new taxes in this year's budget

The National Treasury has assured that it does not intend to introduce new tax rates in the upcoming Finance Bill, 2026.

Treasury Cabinet Secretary John Mbadi stated that the government, through the Kenya Revenue Authority (KRA), aims to strengthen revenue collection.

The CS regretted that one of the biggest challenges is that a majority of taxpayers have gone digital, yet the government remains reliant on manual collection methods.

“On the Finance Bill, 2026, we are not looking at the possibility of increasing tax rates because there is no difference between this and last year; Kenyans are the same, and the rates are the same. We are looking at expanding the base … the base is not expanding as we would have expected, that is why we are putting pressure on KRA, and some reforms will have to take place,” Mbadi stated.

“We have communicated that changes must be seen in terms of revenue collection; failure to do so, we will see how to reform KRA to align it to the fast-moving pace of automation in revenue collection. The taxpayers have moved and gone digital, so we have to follow them, and that has to be deliberate.”

He made the remarks at a meeting with the Budget and Appropriations Committee, chaired by Alego Usonga MP Samuel Atandi, where they discussed the Financial Year 2025-26 Supplementary Estimates No I.

Kibwezi West MP, Mwengi Mutuse, led the committee in urging the CS to describe the tax environment, as the deadline for introducing the Finance Bill, 2026 approaches.

“In 2024, the country almost erupted because of the perception that we were increasing taxes, but you have confirmed in your presentation that you have not introduced new taxes and you are exploring alternative ways to fund our public expenditure. What is your assurance in terms of the tax environment that we are likely to get post June 2026?” Mutuse posed.

Mbadi informed the committee that Treasury has not introduced new tax rates in the current Supplementary Estimates No I and will instead focus on non-tax revenue, administrative efficiency, and targeted policy adjustments to close the budget shortfall.

Mbadi was responding to questions raised about the quantifiable revenue-raising measures expected to generate additional income as projected in Supplementary Estimates No I for the FY2025-26.

He said the non-tax measures include Sh23 billion from Central Bank of Kenya (CBK) investment income, Sh10 billion from parastatal equity withdrawals, and Sh6.4 billion from Railway Development levy, among others, with the CS stating that these inflows have eased financing pressure and maintained liquidity despite shortfalls in tax performance.

“The revenue administration has been boosted by Sh19 billion additional budget to Kenya Revenue Authority (KRA) to increase administrative efficiency, investment in digital systems, data integration, real-time compliance tools, which are expected to reverse compliance gaps and improve VAT and income tax efficiency without raising rates,” Mbadi said.

He said that the National Treasury has prepared tax amendment proposals aimed at broadening the base and sealing leakage with an estimated yield of Sh57.2 billion, and this will be submitted to Parliament for approval.

“We just have a few weeks before the Finance Bill, so bringing in some tax law adjustments at this time... we feel it is too close to the Finance Bill, so we would rather review all issues, consolidate them, and bring them together in the Finance Bill for consideration by the August House,” Mbadi said.

At the same time, the CS stated that there has been a decline in non-performing loans in the financial institutions, which is a positive signal for the economy because banks are able to lend more money to the private sector.

“Reduction in non-performing loans is a clear indicator of increased liquidity in the economy, which has been a big concern to Kenyans. When you listen to Kenyans as they talk, they say they do not feel the money in their pockets, so one of the ways to address this is when the non-performing loans with banks are reducing,” he explained.

The CS said that while good progress has been achieved in implementing the FY 2025/26 budget, a number of challenges have been encountered, including revenue shortfalls.

He said there has been persistent underperformance in ordinary revenue collection, amounting to Sh161.2 billion by the end of last month, which reflects slower-than-projected tax receipts due to administrative challenges and the impact of the Finance Act 2025 that included revenue-reducing measures.

In the Supplementary Budget Estimates No.1, he said KRA has been provided with additional resources to support the upgrade of the tax systems, and this is expected to substantially cover the revenue gap for the remainder of the financial year.

Other challenges include the settlement of pending and newly negotiated Collective Bargaining Agreements (CBA) for public sector employees, which continues to increase the wage bill beyond initial budget allocations, limiting fiscal flexibility.

He also cited emergency interventions for floods and droughts that have prompted requests for emergency funding to support disaster response, as well as additional expenditure requests by Ministries, Departments, and Agencies (MDAs), which have continually put pressure on the already constrained fiscal space.

The total expenditures were adjusted upwards by Sh316.6 billion in this Supplementary Estimates No.1 from the Approved Budget Estimates.

Given the fiscal performance so far in the FY 2025/26, the higher-than-anticipated expenditure pressures, and the revenue shortfalls, the CS said it has become necessary to propose adjustments through a supplementary budget.

Major areas for allocations under this Supplementary Estimates include salaries and personnel costs for agencies such as the Teachers Service Commission (TSC), KRA, health interns, among others, support for education through the Higher Education Loans Board (HELB), scholarships, security operations, and disaster response efforts addressing droughts, floods, and mudslides, among others.

To date, a total of Sh173 billion has been disbursed for project loans and grants against the approved target of Sh258.4 billion, which represents an absorption rate of 67 per cent.

He also said that the budget support disbursements amount to Sh343 billion, attributable to the Eurobond issuances undertaken in October last year and another one last month.

Additional disbursements anticipated before the end of FY2025/2026 include Sh97.5 billion (approximately USD 750 million) from the World Bank, another Sh26 billion (approximately USD 200 million) from the African Development Bank, and USD170 million from the Samurai Loan facility.

“These inflows are expected to bolster budget execution and reinforce the Government's financing framework for the remainder of the fiscal year,” he explained.