Unpacking Finance Bill 2024/25: Strengthening Fiscal Policy Alignment, Revenue Mobilization, and Public Engagement for Sustainable Economic Development in Kenya

Abstract

Executive Summary

Kenya’s current revenue-to-GDP ratio stands at around 14%, significantly below the target range of 24-25% set by various economic frameworks. To achieve this target, critical inefficiencies in tax collection must be addressed, alongside reducing tax leakages, improving compliance, and expanding the tax base. A major challenge is the largely untaxed informal sector, which, despite its considerable contribution to the economy, exacerbates the revenue shortfall. Additionally, the country faces escalating fiscal challenges, including increasing public debt and inefficient resource allocation.

The fiscal challenges are further compounded by inefficiencies in tax administration, the absence of effective digital infrastructure for tax collection, and unclear tax policies affecting the growing digital and gig economies. Public debt, including those associated with state-owned enterprises (SOEs), is on the rise, with privatization offering potential solutions, though requiring careful management to ensure transparency and optimize resource use. Furthermore, the lack of public participation in fiscal decision-making erodes trust, making it difficult to build consensus around fiscal policies. The disconnect between the Finance and Appropriation Bills further complicates resource allocation, while expenditure management inefficiencies deepen the fiscal strain.