BUDGET HIGHLIGHTS 2022/2023 | Audit - Tax - Advisory Kenya
Ronalds LLP review on The Kenyan Budget Statement 2022/2023

On Thursday, 7th  April 2022, the Cabinet Secretary in charge of the National Treasury, Ambassador Ukur Yatani, presented the Budget Statement themed; ‘Accelerating Economic Recovery for Improved Livelihood’ for the financial year 2022/23 to the Parliament. 

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The budget is widely seen as a balancing act of driving the big four agenda, and enhancing the economic stimulus package. Find the discussion below by our team,


A summary of the budget highlights is as shown below; 

A summary of the budget highlights 

The budget targets revenue collection including appropriation in aid and grants amounts to Kshs. 2.4 trillion in the financial year 2022/23 with the ordinary revenue projected at Kshs. 2.1 trillion. This is a 22% increase from the 1.8 trillion in the FY 2021/2022.

The fiscal deficit is projected to decline to Kshs. 862.5 Billion in FY 2022/23 from Kshs. 1,024.3 Billion in the previous FY 2021/22. The financing of this budget will be through net foreign borrowings of Kshs. 280.7 Billion domestic borrowings of Kshs. 581.7 Billion, grants of Kshs. 33.3 billion with a recurrent expenditure at Kshs. 2.2 trillion.

While the expenditure of this budget is focused on economic stimulus and the enhancement of the Big Four Agenda, the implementation of these pillars was highly affected by the Covid-19 pandemic.

The allocations made on the implementation of the Big 4 Agenda are Kshs. 146.8 billion. The other portion of the budget is allocated to critical areas like infrastructure development, and poverty alleviation.

Other sectors that were prioritized in this budget include Education, which was allocated 513.8 billion, due to the newly adopted education system CBC is at its initial stages because of the need to equip teachers on the CBC, and to build classes to accommodate the growing population. In the spirit of devolution, the County government also found the major allocation in the budget at Kshs. 370 billion to manage county operations. The other key budgetary priorities include infrastructure @ Kshs. 368.5 billion and National Security @ Kshs. 317.9 billion.

The Rising Public Debt

In the previous years, the government has been operating on a budget that is financed both by revenues as well as debt, which has been on a steady rise. Currently, the Kenyan debt is at Kshs. 8.2 trillion as of 31 December 2021, which is pushing upward against a ceiling of Kshs. 9.1 trillion. This is a rise from the Kshs. 7.2 trillion in 2020. This is attributable to the increased uptake of more external and domestic loans by the government.

In his address, the CS noted concerns about the high debt burdens that are raised by Kenyans aside from the high cost of living, unemployment rates, and income inequity. As such, there is a push for macroeconomic policies to help counter the rising public debt. The CS proposed to cap the debt ceiling at 55% of GDP. To curb the government’s dependence on debt financing and bridge the budget gap, the CS put emphasis on raising the funding of infrastructure projects through the Public-Private Partnerships (PPPs).

Growth of GDP

The Kenyan Economy showed resilience to the pandemic as the stringent measures taken to curb the spread of Covid-19 were adjusted and regaining the 24-hour economy by uplifting curfew measures that lead to higher production. The Kenyan GDP rose to a significant level of 7.6% in the year 2021. This is majorly attributed to the recovery of the economy from the adverse effects of Covid-19 and the steady recovery of the service sector, especially education and transport.

The service sector which was adversely affected by the pandemic recorded significant growth from the previous year’s contraction of 2% to an increase of 8%. This is attributed to the government easing some of the strict Covid-19 measures that were a major bottleneck to the industry.

We anticipate that the GDP will continue to grow in the next year driven by the full recovery of the manufacturing sector, agricultural sector, and service sectors. With the growth of these sectors, we expect that employment will increase, therefore increase in disposable income and subsequently increasing the consumption rate.

Inflation Rate

The IMF world economic outlook indicates that the global economic growth is expected to reduce to at least 4.4% in the year 2022. In the year 2021, the economic growth rate hit 5.6% globally. This could be attributed to the economic recovery and the ease of grip of the Covid-19 pandemic globally.

The war in Ukraine is forecasted to play part in reducing the economic growth as Russia puts the energy supply at risk.

The average inflation increased in the first quarter of the year 2022 to 6.2% unlike in the year 2021 which was at 5%. However, the Kenyan economy has shown resilience and is forecasted to stabilize in 2022 with a 6% rate of economic growth.

Inflation is projected to remain within the CBK intended range of 2.5% and 7.5%. This is due to the high pricing of food, housing equipment, water supply, electricity supply, and the increasing cost of fuel that is directly impacted by the ongoing conflicts between Ukraine and Russia. This is subject to change due to the global impacts on economic growth and the upcoming 2022 general elections that may disrupt the economy within the country.

Tax Policies Proposed by the CS

Income Tax Act

Donations to all charitable organizations are now tax-deductible.

The CS proposes to amend Section 5 (2) (w) of the Income Tax Act by allowing all entities that make donations to charitable organizations to deduct the expenses from their taxable income.

Initially, these expenses were deductible only when incurred by registered charitable organizations. This is a welcome move for businesses that make charitable donations to unregistered organizations, these donations will be tax-deductible.

While the CS intentions are noble, this is a new regulation that is open to abuse by taxpayers since there is no proper definition as to what entails allowable donations. We recommend more regulations to be published guiding taxpayers on deduction of these donations,

Capital Gains Tax(CGT) applicable to Non-residents on Gains from Financial Derivatives

The CS proposes to introduce CGT on gains accrued from financial derivatives to non-residents. This implies that non-residents who gain from hedging, futures, and options will be charged 5% on their net gain.

This is intended to expand the tax net and increase the revenue collection while observing the tax canon on equity by taxing both residents and non-residents.

Exemption under Thin Cap Rules

The CS proposes to exempt microfinance institutions registered under the Microfinance Act from thin cap rules. This is because these microfinance institutions were missed on being included in this exemption when the new thin cap rules were introduced, last year.

This is a welcome move as these institutions will claim the entire interest expense on borrowings. In the long run, this will spur economic growth across microfinance institutions.

Multinational Enterprises to Declare their Activities to the Commissioner of Domestic Tax

Kenya is among the countries that signed the multilateral agreement for Mutual Administrative Assistance in Tax Matters. Therefore, Kenya is expected to exchange information on tax matters with other tax authorities in other jurisdictions that are members of the forum.

The CS proposes to introduce a requirement for multinational enterprises established in Kenya to declare their group activities to the Commissioner of Domestic Taxes.

Through this proposition, the government will be able to achieve transparency through the exchange of information between different jurisdictions and curb profit-shifting malpractices and tax evasion.


VAT Exemptions

ItemCurrentProposed RateOpinion
Plant & Machinery for Pharmaceutical ProductionVatable at 16%ExemptThis is a welcome move as Kenya grapples with the effects of the Covid-19 pandemic. The pharmaceutical industry is expected to leverage this incentive and increase its level of production. In the long run, this will ease the medical cost incurred by the public.
The following items; Medical Oxygen supplied to registered hospitals, urine bags, adults diapers, artificial breasts, colostomy or ileostomy bags for medical useVatable at 16%ExemptThis is a welcome move that will ease the access of these essential supplies in the medical sector by the public.
Input or raw materials for the manufacture of Passenger Motor VehiclesVatable at 16%ExemptThis is an incentive in the motor vehicle sector. This will reduce the cost of acquiring/importing raw materials necessary for manufacturing motor vehicles   In addition, this proposal will encourage more investors in the manufacture of motor vehicles sector who intend to establish locally.  
Sale of locally manufactured Passenger Motor VehicleVatable at 16%ExemptThis proposal will be an incentive that will encourage investors dealing with the manufacture of passenger motor vehicles. In the long run, the cost of acquiring these passenger motor vehicles is expected to reduce.


Annual Inflation Adjustment

The CS proposes to empower the Commissioner to exclude from annual inflation adjustments some products depending on their social and economic environment.

This is a welcome move that will see the excise duty of some products not subjected to inflation adjustment. However, these products will only be at the discretion of the KRA Commissioner.

Other Excise Duty Changes

ItemCurrentProposed RateOpinion
Eggs25%ExemptThis is a good move to reduce the cost of living by reducing the cost of importation and increasing the supply of eggs by registered hatcheries in Kenya.
Neutral Spirit25%Exempt for Pharmaceutical CompaniesThis proposal comes in as a relief to manufacturers of pharmaceutical products as they initially used to experience delays in receiving excise duty refunds resulting in cash flow uncertainties.
Locally manufactured passenger motor vehicle25%ExemptThis proposal by the CS is welcomed as it is an incentive to promote local manufacturers by granting a competitive advantage in the market over imported motor vehicles.
Advertisement Fees for Gambling, gaming and alcohol promotionN/A15%The introduction of the 15% on gambling, gaming and alcohol promotion advertisement services is a ‘sin tax’ intended to curb the spread of these advertisements and the ultimate consumption of these products by the youths as they are deemed addictive and unhealthy. In the long run, this excise duty will increase the cost of promoting gambling, gaming and alcohol products since the promoters will shift the cost to the gambling and alcohol companies. In addition this will reduce the consumption levels of alcohol and gambling activities in the society.

Petroleum products

Exclusion of further increase in excise taxes by 10%  on oil products is a relief to citizens as this will cushion them from ever-fluctuating upward rising of oil prices in the global markets.

Liquid nicotine

With an influx of new tobacco products such as E-Cigarettes that use liquid nicotine, the proposal will introduce an excise duty of Kshs. 70 per milliliter in a bid to curb misuse of tobacco products by school going children and the youth. 


Change of Name – Kenya Revenue Service 

The CS proposes a change in name from ‘Kenya Revenue Authority’ to ‘Kenya Revenue Service’. This is a rebranding move aimed at aligning the Authority while transforming its administrative functions and service delivery to the taxpayers. 

This proposition seems to have borrowed a leaf from our neighboring country, Tanzania which uses the name ‘Service’ instead of ‘authority’.           

It is our hope that the institution will live up to the new proposed rebranded name “service” by ensuring it adopts a service oriented administration instead of the authoritative form as it is currently perceived by the taxpayers.

Tax Appeals Tribunal Act 

Pay to play policy.

The CS proposes to amend the Tax Appeals Tribunal Act 2013 by introducing a requirement for taxpayers to deposit 50% of the disputed tax revenue in a special account at the CBK when the Tribunal makes a ruling in favor of the Commissioner as the taxpayer proceeds to appeal the decision. This is in a bid to safeguard the disputed tax revenue. However, should the final judgment be made in the taxpayer’s favour, the full amount is refundable to the taxpayer 30 days after the final determination of the matter.

This proposition seems to have made reference to other countries such as Uganda, where the Uganda Revenue Authority, TAT Act Section 15 had a Pay to Play policy which required a taxpayer to pay 30% of the disputed tax before appealing. This provision however was challenged in Court and it was ruled it to be unconstitutional.

This proposal is obnoxious in the essence that it is engineered to discourage taxpayers from lodging appeals against KRA beyond the Tax Appeals Tribunal. This will be a major hindrance to seeking tax dispute resolution. In addition, given that most businesses are recovering from the effect of the pandemic, it is without a doubt that they will encounter challenges in raising at least 50% of the disputed amount from their cashflows. Therefore, this will be punitive to the taxpayers as it raises the going concern issue on their businesses.

Miscellaneous Fees and Levies Act

Exemption of Pharmaceutical Inputs from Import Declaration Fees and Railway Development Levy

The CS proposes to exempt inputs and raw materials used imported by manufacturers of pharmaceutical products from payment of Import Declaration Fees and Railway Development Levy.

This is a welcome move directed at encouraging investors in the health care and ease the access of these health care services especially at these times when Kenyans are struggling with the effects of the Covid-19 pandemic.

Reduction of Export Levy on Raw Hides and Skins

The CS proposes to reduce the export levy on raw hides and skins from US 0.5 per kilo to USD 0.32 per kilo.

Many communities in Kenya rely on pastoralism as an economic activity. This reduction in export fees will benefit many farmers who export raw hides and skin.

Tax Procedures Act

Restriction of Transfer of Assets for Tax Evaders

The CS proposes to extend the restriction on transfer of land to apply to other assets that are in possession of a taxpayer who has tax arrears to the Commissioner of Domestic Taxes. In particular, the Tax procedures Act requires a restriction on transfer by the Registrars of ships, aircrafts, motor vehicles and on any other assets that maybe used as security for unpaid taxes.

This is an administrative move intended to ease the recovery of tax arrears from taxpayers by the Kenya Revenue Authority. This however, may hinder the going concern of some businesses which rely on receipts from transactions involving transfer of such assets by taxpayers.

Objection Decision Period

The budget proposal seeks to amend the time of determination of an objection from initial procedure where determination of an objection was due 60 days from the last day KRA requested for additional information from the taxpayers to 60 days from the date of lodging a valid objection by the taxpayer.

Currently the Act does not specify the number of times that the Commissioner can request for additional information on a particular case hence prolonging the time taken to make a decision on objection. This is a welcome move as it seals the loophole that has always been exploited by the Commissioner on prolonging objection decision as it gives taxpayers a clear timeline on when to expect objection decision.

Related: Creating a successful business in 2022

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