The theme of the 2024 Budget Policy Statement (BPS) is “Sustaining Bottom-Up Economic Transformation Agenda for Economic Recovery and Improved Livelihoods.” This BPS, the second under the Kenya Kwanza Administration, emphasizes supporting the Bottom-Up Economic Transformation Agenda (BETA) and aligns with Kenya’s Vision 2030’s Fourth Medium-Term Plan.

Economic Performance and Projections

Kenya’s economy has shown resilience, growing by 5.6% in the first three quarters of 2023, surpassing global and regional averages. The projected growth for 2023 and 2024 is 5.5%, driven by private sector expansion, service sectors, agriculture, and policy measures supporting BETA.

Budget and Expenditure

Following the review of the 2024/25 BPS, the Budget and Appropriations Committee approved an expenditure of KES 3.914 trillion. Estimated tax revenues are expected to be KES 3.354 trillion, comprising ordinary revenues of KES 2.913 trillion and appropriations-in-aid of KES 441 billion.

Fiscal Deficit

The projected fiscal deficit is KES 703.9 billion, representing the gap between total revenues (including grants) and total expenditure (including net lending). This deficit accounts for 3.9% of Kenya’s Gross Domestic Product (GDP).

Medium-Term Revenue Strategy (MTRS)

A significant component in revenue mobilization is the Medium-Term Revenue Strategy (MTRS), designed to reform tax systems and boost domestic revenue. The current MTRS, spanning FY 2024/25 to FY 2026/27, aims to increase the tax-to-GDP ratio from 14.1% to 20%.

Proposed Tax Reforms

To achieve these goals, the government introduced the Finance Bill, 2024, which includes several notable tax changes:

• Motor Vehicle Tax: A contentious tax set at 2.5% of the vehicle’s value, with a minimum of KES 5,000 and a maximum of KES 100,000.
• KRA Decision Time Frame: Extension of the time frame for the Kenya Revenue Authority to issue decisions from 60 to 90 days.
• VAT Registration Threshold: Increase in the threshold for VAT registration from KES 5 million to KES 8 million.

International Tax Provisions

The Bill also proposes a minimum top-up tax of 15%, aligned with the Inclusive Framework Pillar Two proposal. This applies to resident entities or those with a permanent establishment in Kenya that are part of a multinational group with a consolidated annual turnover of EUR 750 million (approximately KES 108 billion) in at least two of the preceding four years.

Conclusion

The 2024 BPS sets the stage for sustained economic recovery and improved livelihoods through a robust bottom-up approach. The proposed tax reforms and strategic economic policies aim to fortify Kenya’s fiscal position and drive inclusive growth.