Inside Treasury CS Mbadi's plans to reduce VAT, corporate tax, PAYE

The National Treasury has introduced a medium-term revenue strategy aimed at enhancing domestic revenue mobilisation, while also signaling a reduction in key tax rates.

In a surprising turn, Mbadi revealed that the Treasury's focus will not be on increasing taxes but on reducing them to boost compliance and expand the tax base.

"We are going to reduce VAT in the medium term from 16% to about 14%. We also want to lower corporate tax from 30% to 25% and even reduce Pay-As-You-Earn (PAYE)," said Mbadi.

He highlighted that this strategy aims to strengthen the policy framework for fiscal consolidation.

The ultimate goal is to achieve the East African Community convergence criteria, with a fiscal deficit of 3% of GDP.

National Treasury CS John Mbadi speaking at KICC on September 9, 2024 National Treasury CS John Mbadi speaking at KICC on September 9, 2024 Pulse Live Kenya

Public Finance Management Reforms to Enhance Accountability

CS Mbadi also mentioned the need for further reforms in Public Finance Management (PFM), calling on accounting officers across the government to prioritise efficiency, accountability, and prudent use of resources.

One of the most significant changes will be the implementation of an end-to-end e-government procurement system aimed at enhancing transparency and value for money in government spending.

"The system needs Sh560 million, and I’ve already instructed the Principal Secretary for the Treasury to ensure that the money is made available. The savings we’ll make through disciplined procurement will far exceed the initial cost," Mbadi assured.

The new procurement system is set to be fully operational by January 2025, and piloting is currently underway.

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Transition to Accrual Accounting and Asset Management Overhaul

The Treasury is also embarking on a transition from cash-based to accrual-based accounting, a move intended to improve cash management and enhance financial reporting.

According to Mbadi, this shift will enable the government to account for all its assets and liabilities accurately, a critical step in managing public finances more effectively.

"No one can currently tell us with certainty the value of the Kenyan government's assets, including land and buildings. The accrual accounting system will help resolve that by ensuring all assets and liabilities are accounted for," said Mbadi.

Additionally, pending bills will no longer be mere appendages in financial statements but will form an integral part of Kenya's financial reporting.

National Treasury CS John Mbadi speaking at KICC on September 9, 2024 National Treasury CS John Mbadi speaking at KICC on September 9, 2024 Pulse Live Kenya

To ensure the successful rollout of these reforms, a multi-agency task force headed by Treasury Principal Secretary Chris Kiptoo has been constituted.

The team will guide the transition to accrual accounting and oversee reforms in automating asset and inventory management in both Ministries, Departments, and Agencies (MDAs) and County Governments.

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Accountability and Efficiency as Core Goals

During his speech, Mbadi stressed the importance of government accountability and efficiency, especially in public procurement.

He acknowledged that past efforts to improve procurement practices had been hampered by delays and excuses but affirmed that this would no longer be tolerated under the new system.

"The current broken procurement system must stop. We are moving to an end-to-end process where every procurement, from ministries to county governments, will be tracked for transparency and accountability," he declared, leaving no room for complacency.