Kenyan taxpayers face bleak times in the coming months as Treasury moves to tighten the noose on revenue collection and review tax exemptions.

While Treasury has ruled out the possibility of raising income taxes to fund surging government expenses, the Kenya Revenue Authority (KRA) has lined up a series of new plans to increase the country’s tax-base, reduce tax evasion, seal tax avoidance loopholes and get rid of tax exemptions.

The plans are likely to push up the cost of production for businesses and pile pressure on households as they could come with higher taxes for electricity and industrial goods. Value Added Tax is to be raised from the current 12 per cent to 16 per cent, pushing up the cost of electricity and industrial production costs, effectively making consumer products and power more expensive.

Kenya is faced with a revenue shortfall of Ksh 17 billion ($200 million) as at the end of last month blamed on weaker-than-envisaged growth and new expenditure demands such as the recently higher salary awards for public servants, drought mitigation measures, implementation of new Constitution and security operations such as the war against Al Shabaab. The spending plan has further been jeopardised by a shortfall in domestic borrowing, a key instrument the government hoped to use to finance its operations.

As at the end of December, borrowing was Ksh 14 billion ($164 million) against a target of Ksh 87 billion ($1.1 billion), frustrated by volatility in money market leading to undersubcription, rising inflation and weakening of the shilling.

Treasury projects the overall budget deficit to rise to about KShs 177.7 billion ($2 billion) or 4.6 per cent of GDP. This has put KRA on notice to up its revenue collection.

The government is also planning to rationalise existing tax incentives with an aim of scrapping obsolete ones in what could generate the exchequer at least Ksh60 billion ($705 million) annually. Other proposed measures include establishment of a mechanism for enhanced collection of property taxes to strengthen the revenue base of the new counties within the devolved system.

Justus Nyamunga, the director of economic affairs at Treasury said there would be no increase of taxes in the coming budget despite the additional expenditure pressures.

“We are not planning to raise taxes, what we will do is to reform the tax code to increase collection, ” he told The EastAfrican.

Treasury will borrow from both the domestic and international markets to plug budget holes, while also hoping that growth will gather pace and boost tax revenues.