List Of Taxes To Be Reduced In John Mbadi's Policy Review, What It Means For Kenyans

• Treasury Cabinet Secretary John Mbadi announced a reduction in Value-Added Tax (VAT) from 16% to 14%
• Corporate tax will be reduced from 30% to 25%, a move designed to support businesses, stimulate investment, and boost economic growth
• The government plans to lower Pay-As-You-Earn (PAYE) tax rates, which economist Daniel Kathali says will increase disposable income for Kenyans

Elijah Ntongai, a journalist at TUKO.co.ke, has more than three years of financial, business, and technology research expertise, providing insights into Kenyan and global trends.

Treasury Cabinet Secretary (CS) John Mbadi announced key tax reductions in the government's latest fiscal policy review in a bid to ease the economic burden on Kenyans.

Speaking during the launch of the 2025/26 Budget Preparation Process on Monday, September 9, CS Mbadi noted that the move will create tax rates that build the tax base and enhance compliance.

Treasury CS Mbadi emphasised that high tax rates often discourage compliance, resulting in a smaller tax base.

By reducing tax rates, the government expects more individuals and corporations to adhere to tax obligations, thus increasing overall revenue.

Taxes to be reduced

Value-Added Tax (VAT)

One of the most significant changes involves the reduction of VAT from 16% to 14%. This move is expected to provide some relief to consumers, as VAT applies to most goods and services in Kenya.

The decrease aims to encourage spending, particularly on essential goods, while ensuring the government can still collect adequate revenue through higher compliance.

Speaking to TUKO.co.ke, economist Daniel Kathali hailed the move to reduce VAT, noting that it is one of the biggest contributors to the high cost of living.

"Saying and doing are two different things. But if Mbadi manages to lower VAT production, the prices of many products in Kenya will be reduced. This is good news for Kenyans if the implementation is done in the right way. Consumers will benefit directly as the cost of everyday items, such as groceries, fuel, and utilities, could decrease.

Eventually, this could increase purchasing power, allowing people to buy more with the same amount of money. As prices drop, consumers will also be more inclined to purchase more, which could stimulate various sectors of the economy currently suffering due to the increased tax burdens on businesses and consumers," Kathali explained.

Corporate Tax

Corporate tax will also see a reduction, dropping from 30% to 25%. This tax cut is designed to support businesses by reducing the burden on companies.

By lowering the corporate tax rate, the government hopes to stimulate investment and business growth, ultimately boosting economic productivity.

Pay-As-You-Earn (PAYE)

PAYE, which applies to individual incomes, will be reduced as part of this policy review.

While the exact figures have yet to be finalised, the reduction is intended to relieve wage earners, improve disposable income, and stimulate economic demand.

KRA requires an employer to apply the Individual Income Tax Rates (Bands) that range from 10% to 35% as per Finance Act 2023 while computing PAYE.

By reducing the amount of salary deductions, Kenyan consumers will have higher purchasing power, which could also stimulate various sectors of the economy.

Aside from tax reductions, CS John Mbadi introduced additional measures to enhance fiscal responsibility and transparency within the government.

These include the adoption of a zero-based budgeting approach, which requires ministries to justify every expenditure to ensure resources are used efficiently.

Additionally, the Treasury will implement a new financial management system aimed at improving transparency, particularly in the procurement process, to ensure accountability and prudent use of public funds.

Mbadi's plan to enhance revenue collection

Earlier, TUKO.co.ke also reported on various measures John Mbadi intends to implement to enhance revenue collections.

This came as the government struggled with an increased budget deficit, which hit KSh 767 billion in the current financial year.

Mbadi highlighted the medium-term revenue strategies his office will be undertaking to enhance the Kenya Revenue Authority (KRA) tax collection.

The CS noted that the fiscal framework defined in the Budget Preparation Procedure will be premised on the real GDP growth and retained inflation rate below the Central Bank of Kenya (CBK) mid-point target range of 5%.

Proofreading by Otukho Jackson, a multimedia journalist and copy editor at TUKO.co.ke

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