The introduction of new clauses in tax laws without specifics on how much they will raise has been singled out by audit and tax consultancy firm PKF as an oversight in the budget-making process.

The firm, while calling for more visibility, also took issue with provisions in the Finance Bill, 2025, that seek to wipe out incentives enjoyed by investors through tax expenditures.

These measures include scrapping the indefinite rollover of tax losses, limiting this period to five years and repealing capital investment deductions. While the firm noted that Kenya’s economy is at an advantageous point, courtesy of a strong shilling and controlled inflation, how the government will balance raising revenue without burdening the taxpayer further will be key.

PKF Eastern Africa Chief Executive Alpesh Vallabhdas Vadher said most times, the country tends to project revenues blindly without any strategy on how to collect more and at the same time, increase expenditure.

This puts the government in a fiscal deficit. “A big fiscal deficit means more borrowing from the market,” he said.

He said Kenya is at an advantageous point in time as interest rates in the global economies are cooling due to their consumer-driven economic model.

He said these advanced economies have learnt that increasing taxes does not necessarily lead to more revenue for the government. “If you increase taxes, it does not mean you are going to meet your (tax) revenue just like business, if our local mwananchi does not have disposable income, how are they going to spend?” he posed. “We need to find the right balance.”

Striking this balance, however, is the dilemma that the government faces, particularly with this year’s Finance Bill, which is largely non-tax-based due to the chaos associated with the 2024 budget-making process. In the Finance Bill 2025, the government seeks to reduce some of the incentives offered to investors that have seen it forego revenue to the tune of Sh510.6 billion through tax expenditures.

However, PKF, in its analysis, while questioning the non-adoption of the National Tax Policy, queried if this measure would lead to increased revenue. “Does it mean that repealing the tax expenditure regime will automatically result in the realisation of additional revenues? In as much as an analysis on this would be needed to conclusively arrive at a definite position, this could be negative in the long term,” reads an analysis by the firm. Whilst a National Tax Policy has been touted as the pathway to a more predictable business environment, PKF Director Eastern Africa James Mulili opined that adoption of the document may not necessarily mean less tax expenditures.

“The answer would likely be that a more stable tax regime will result in more predictable tax planning for a lot of businesses,” he said.

Mr Mulili pointed out the lack of visibility in the amounts targeted for each clause that is inserted in the Finance Bill, which should offer guidance to how the government should raise revenue. “In as much as the theme in each of the amendments is that it would result in additional revenue, there seems to be no visibility on how much additional revenue and how the government goes about raising (the additional revenue),” he said.

He said there never seems to be any work that goes around to reconcile what the government is saying that was the targeted additional revenue, versus the realised revenue that was collected at the end of the year. “This appears to be just an academic exercise to give a projection for the purposes of coming up with the budget estimates but there is no real tangible work that goes towards doing an analysis and say out of the changes that was proposed, this had this kind of impact in terms of realising the additional revenue,” said Mr Mulili.