Why Parliament Must Reject Finance Bill, 2025
On 7th May, 2025, the National Assembly published the Finance Bill, 2025 as National Assembly Bill No. 19 of 2025 which was committed to the Departmental Committee on Finance and National Planning. In accordance with article 118 (1)(b) of the Constitution of Kenya, the National Assembly invited the members of the public to submit memoranda based on the tax proposals on the Finance Bill, 2025.
Being a key component of the revenue raising by the national government, the Bill proposes a range of measures, touching on the Income tax Act, VAT Act, Excise Duty Act, Miscellaneous Fees and Levies Act, and Tax Procedure Act.
Whereas progressive revenue mobilization is an essential for any government that is development-oriented, a progressive and inclusive tax regime that guarantees sustainable economic development, future, and prosperity is paramount.
As the government propels revenue mobilization efforts and seeks to improve tax administration, keen focus should be the protection and promotion of equity and a balanced economic development.
However, a majority of the fiscal proposals outlined by the Finance Bill and the Budget estimates reveal a more urgent crisis due to continued unchecked duplicative expenditures and poor priorities which risks undermining service delivery and deepening the inequality gap.
It is therefore unfortunate that the government through different fiscal policy programs has shied away from this reality. Regressively, such measures have accounted for the increasing social-economic inequality over the years.
Looking at the Finance Bill 2025, a majority of the proposed tax measures will exponentially increase the costs of living for individuals and households that are already facing economic hardship and struggling to finance basic needs due to lack of affordability.
Therefore, implementation of the fiscal proposals will not only widen the poverty gap but will also further escalate the problem of socio-economic exclusion in the republic.
The national assembly must let go of these regressive tax proposals.
During the coming financial year, the government plans to mobilize Ksh 3.32 trillion through revenues and Ksh 876.1 billion through domestic and external borrowing. This will bring the total spend to Ksh 4.24 trillion.
To promote inclusive sustainable economic development, the government must develop and implement a fiscal policy that is pro-poor sensitive and reduces the cost of essential services such as education and healthcare, and access to food and proper nutrition and guarantee social protection.
A close look at the Budget Estimates however clearly shows how proposed allocations to the different sectors will exacerbate inequality.
Despite being part of its fiscal consolidation efforts, the government proposes to reduce spendings on the very critical service sectors whose impacts on the economically underrepresented will be severe.
For example, the wage bill on one hand is projected to increase further while the overall spending on social sectors will receive insignificant growth on the other.
To illustrate, the proposed creation of 7 new state departments will only expand the size of the government and increase administrative costs.
While some of the service sectors such as social protection, affordable housing and Water and Sanitation might benefit from the proposed additional allocations; sectors such as basic education, school feeding programs, and free maternity program (Linda Mama) will be negatively affected due to reduced allocation or total omission from the budget as is the case with Linda Mama program.
On taxation, certain proposals will disproportionately worsen the economic situation and negatively affect the low and middle-income citizens. For example, the proposal to reduce tax rates for Special Economic Zones (SEZs) and the Nairobi International Financial Centre might sound investment friendly.
However the proposal raises serious concerns on potential creation of tax shelters for the well-connected and politically aligned individuals.
Additionally, the removal of essential zero-rated items from the VAT Schedules under Clauses 36 and 37 of the Finance Bill implies that goods such as solar panels, raw materials for medicines, animal feed inputs, electric vehicles, electric bicycles, and bioethanol stoves will be moved from zero-rated to VAT-exempt status.
It is important to note that the implication of this is increased production costs and ultimately high consumer prices as the VAT-exempt status denies the manufacturers the opportunity to claim tax refund in input expenditure hence the costs are in turn transferred to the consumer.
Therefore, the costs of healthcare, food, clean energy, and transportation are likely to increase and low income households further burdened.
This will continue to predispose the highly vulnerable societies to social economic exclusion and further escalate poverty.
To ensure progressive and sustainable economic development and to guarantee the Kenyan future, the National assembly must prevent wasteful spending, eliminate duplication of roles, and redirect funds to essential and pro-poor sectors such as education, agriculture and food security, social protection, and healthcare.
Source: National Taxpayers Association; admin@nta.or.ke