Kenya's 2024 budget represents a critical juncture for the nation: balancing economic recovery with long-term development goals and aligning this with proper tax structures.
However, some of the proposed measures in the Finance Bill are not so well thought and there is a need to set proper structures before effecting them.
Principles of taxation state that taxes should be predictable to enable investors plan their businesses.
Kenya's tax landscape has been marked by unpredictability, posing significant challenges to businesses.
The frequent changes in tax policies, including abrupt increases in tax rates and the introduction of new taxes, create an unstable environment that hampers long-term planning and investment decisions.
This unpredictability undermines investor confidence and can deter both local and foreign investments, essential for economic growth.
For instance, if we look at how former President Mwai Kibaki did it he first grew the economy before effecting tax measures.
Ideally, it is more viable to grow the economy, create the base then you can go ahead and effect the consumption taxes.
Prioritising economic growth before expanding the tax base is a strategic approach that could significantly enhance Kenya's long-term fiscal health and development.
This principle, grounded in economic theory, suggests that fostering a robust economic environment will naturally lead to increased revenue through higher levels of income, consumption and investment.
Once the economy is on a strong growth trajectory, a more expansive and effective taxation system can be implemented.
This approach ensures that the tax burden does not stifle economic activity during its nascent stages of growth.
Instead, a thriving economy would naturally yield higher tax revenues without the need for high tax rates or aggressive tax policies, which can be counterproductive if implemented prematurely.
For Kenya to realise its economic potential and attract sustained investment, there is a pressing need for a more predictable and transparent tax regime.
This includes ensuring thorough stakeholder engagement in policy formulation, providing clear guidelines and sufficient transition periods for new taxes, and enhancing the efficiency and fairness of tax administration.
A stable tax environment will foster business growth, encourage investment and ultimately contribute to broader economic stability and development.
Managing partner of Richard Ngari & Co Advocates spoke to Star