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Kenyans are bracing for potential price hikes on essential goods such as milk, bread, and unga if Parliament passes the proposed Finance Bill 2025 without amendments.

The Bill seeks to impose an 18 per cent Value Added Tax (VAT) on these previously exempt items, a move that could significantly impact the cost of living for many households.

This proposal aims to generate Sh3.6 trillion in revenue for the 2025/26 fiscal year, aligning with the National Treasury’s Medium-Term Revenue Strategy to increase the tax-to-GDP ratio to 25 per cent by 2030.

The introduction of VAT on basic commodities marks a significant shift in government policy. Historically, these items enjoyed exemptions or zero-rating designed to protect low-income households from rising costs. However, the government argues that eliminating these exemptions will help boost revenue significantly.

By broadening the tax base to include a wider range of products, the National Treasury hopes to tap into the consumption patterns of middle-class households, thereby enhancing overall tax receipts.

National Treasury and Planning Cabinet Secretary John Mbadi had previously assured citizens that no new taxes would be levied on basic commodities consumed by low-income households. “The other thing is to ensure that no additional taxes are introduced on basic commodities that are consumed by low-income Kenyans.”

This statement has raised concerns among citizens who feel betrayed by the government’s sudden shift in policy. The proposed tax increases contradict earlier commitments and have led to fears of renewed public unrest.

Last year, similar tax proposals sparked widespread protests across Kenya. In mid-June 2024, demonstrations erupted following the government’s announcement of new taxes, including a 16 per cent sales tax on bread and an eco-tax on basic products. These measures led to significant civil unrest, with protesters attempting to storm Parliament and resulting in multiple fatalities and injuries.

The government was forced to withdraw the controversial Finance Bill amid public outcry and demands for fiscal accountability. Given this history, lawmakers are acutely aware of the potential backlash against any new tax measures.

In addition to VAT adjustments on essential goods, the Finance Bill also proposes a revision of the income tax structure. The new Pay-As-You Earn (PAYE) system will feature a progressive tax rate, with high-income earners facing rates as high as 37.7 per cent. Lower-income earers will contribute at a minimum rate of 25 per cent.  This approach aims to ensure that wealthier individuals contribute a fair share to national revenue while promoting equity within the tax system.

The introduction of various new levies is also noteworthy in this proposed legislation.  A Mazingira tax, akin to an eco-levy, will be applied across all goods to promote environmental sustainability while generating additional revenue.

This new tax could impact everyday items such as sanitary products and diapers, raising concerns among citizens already facing economic challenges and a high cost of living.

Moreover, the Bill proposes an increase in the fuel levy by Sh10 per litre, bringing it to Sh35. This increase is expected not only to raise significant funds for government projects but also to encourage more efficient fuel consumption practices among citizens. As fuel prices rise globally, this additional burden may further strain household budgets.

National Treasury is also targeting mobile money services with a proposed levy of 1 per cent on all paybill and till number transactions. This move acknowledges the increasing reliance on digital finance and aims to capture revenue from this expanding sector.

Agriculture remains a vital part of Kenya’s economy, and the government plans to impose a five per cent tax on sales from key agricultural products such as tea, coffee, and avocados.

While this may be seen as burdensome for farmers who are already grappling with fluctuating market prices and climate challenges, it reflects an effort to ensure that all sectors contribute fairly to national development.

Land taxation is another area where reforms are being introduced under this Finance Bill. The government intends to implement land rates on both leasehold and freehold properties while introducing an idle land tax set at 10 per cent of the land’s value.

This measure aims to encourage productive use of land resources and deter speculation in real estate markets that have seen rapid inflation.