Running a low tax economy can broaden the tax base and gradually reduce fiscal deficits. A model that relies more heavily on consumption taxation would allow Kenya to expand revenue collection while reducing excessive dependence on income taxation.
This means Kenya must focus more on manufacturing, distribution, trade and retail. The first step towards making consumption taxation highly collectable is creating designated business environments, standardizing business processes and deploying effective digital systems.
We can achieve this while gradually reducing the punitive burden of income tax, where only about 3.5 million Kenyans are carrying the income tax burden for a population of nearly 60 million. This is fundamentally unsustainable. Consumption taxation broadens participation because everyone contributes when they consume, without the complexity of refunds associated with VAT.
A simple, predictable and certain tax code makes it easier for citizens and businesses to understand and meet their obligations. Kenya is already blessed with effective mobile money infrastructure, which can become a key mobilizer of revenue. Paybills and business tills should be legally designated as the primary channels for business transactions, creating traceability and improving revenue collection.
Every business should be registered, and this framework must extend to the smallest trader. Even hawking should operate within a simple, affordable and traceable registration framework. With such leverage, a consumption-based tax regime can take root across the economy.
As more people move into formal employment and the burden of income taxation is reduced, disposable incomes would increase. This could stimulate consumption, expand markets and create more opportunities for businesses and workers.
The elephant in the room, however, is debt. Our natural resources must ultimately become part of the strategy for managing and repaying this debt. At the same time, Kenya needs predictable laws that enforce fiscal discipline.
We must rethink provisions such as Section 50(7)(d) of the PFM Act, which can create incentives for continued borrowing. Debt should never become a business for a privileged elite while the country carries the guarantee.
Kenya can build a stronger revenue base, reduce its fiscal deficit and move towards a surplus within a decade if we fundamentally rethink how we tax, regulate and grow the economy.
