Kenya’s Medium Term Revenue Strategy (MTRS): Tracking the implementation milestones

Whenever the country’s budget season is brought to the fore, the phrase ‘medium term revenue strategy’ is repeatedly uttered by policymakers, professionals and the general public during the debate and public participation on the proposed revenue raising measures.

Kenya’s Medium-Term Revenue Strategy (MTRS) is a policy framework for comprehensive tax system reform aimed at boosting domestic revenues. Approved in 2024, Kenya’s first MTRS covers financial years (FY) 2024/25 to 2026/27 and aligns with the country’s Bottom-Up Economic Transformation Agenda (BETA). The MTRS sets an ambitious goal of raising the tax-to-gross domestic product (GDP) ratio to 20% by FY 2026/27, which is meant to reverse a decade-long decline in Kenya’s tax-to-GDP ratio. Specifically, ordinary revenue as a percentage of GDP had declined from 18.1% in FY 2013/14 to 14.3% in FY 2022/23.

To reverse this trend, the strategy has adopted 2 key pillars. First among them is the implementation of tax policy reforms aimed at broadening the tax base, adjusting tax rates where necessary, and reviewing and rationalizing tax expenditure. The second core pillar is tax administration reforms, which entail modernizing the Kenya Revenue Authority’s (KRA) systems and improving compliance enforcement.

Journey so far

In the first two years of the MTRS period, the government has enacted several tax measures, primarily through the annual Finance Acts. For instance, through the Finance Act, 2025, the government has reviewed the tax regime for betting and gaming services to impose excise duty and withholding tax on amounts deposited and withdrawn from gaming wallets, rather than on the amounts staked or won. Further, the government raised VAT on fuel from 8% to 16%, and also expanded taxation to emerging sectors, such as excise duty on cryptocurrency transactions and new withholding taxes on digital content monetization and supplies of goods to public entities. The excise duty rates on alcoholic products were also revised to be based on alcohol content to curb health risks and raise revenue. Additionally, the government revised the corporate tax rate for branches from 37.5% to 30% and introduced a 15% tax on repatriated branch profits. To tax the digital economy, the government also introduced significant economic presence tax (SEPT) in 2024 to tax income earned by non-residents from digital services. Most notably, the KRA launched the electronic invoicing system (eTIMS), requiring businesses to issue eTIMS invoices and disallowing expense deductions if not eTIMS-compliant.

However, several key MTRS proposals have faced delays. For instance, while the MTRS envisages lowering the corporate tax rate from 30% to 28% to align with global/regional averages and potentially aligning the top personal income tax rate accordingly, these cuts have not occurred, largely due to an underperformance in domestic revenue collection over the years. Similar challenges have waylaid the implementation of the proposed reduction in the VAT rate from 16% to 15 or 14%. Additionally, certain controversial VAT base expansions – for example, applying VAT to some education and insurance services – met public resistance and have been reconsidered. Further, some institutional reforms, such as the integration of all KRA systems internally and with other government systems have encountered delays.

Other key factors have also contributed to the delays in MTRS implementation in Kenya. For instance, in mid-2024, widespread protests erupted against proposed tax measures in the Finance Bill, 2024, which included higher taxes on basic goods and services. Institutional and administrative capacity challenges have also hindered the strategy’s implementation. Fully rolling eTIMS, for example, has been a challenge, and KRA has had to allow multiple transition periods. Further, the MTRS’s implementation has met legal hurdles, with multiple measures such as the prior minimum tax being declared unconstitutional. This has made the government more careful in reintroducing such measures, taking time to redesign them to withstand legal scrutiny. More recently, parts of the Finance Act, 2023 (including the housing levy) were declared unconstitutional, infusing further uncertainty into implementation.

Lessons for the future

Kenya’s experience with the MTRS, marked by ambitious goals and mixed implementation progress, is not unique. Several other countries have adopted MTRS frameworks since the concept was introduced around 2016, with varying degrees of success. On the continent, countries such as Rwanda and Benin are in the formulation stage of their MTRS, as per the Platform for Collaboration on Tax, which is a joint initiative between the International Monetary Fund (IMF), the Organization for Economic Co-operation and Development (OECD), the United Nations (UN) and the World Bank Group (WBG). Other countries such as Senegal are in the Early Implementation stage, while some such as Egypt and Uganda are in the more advanced Implementation stage. For context, Kenya is classified in the Pre-formulation phase of its MTRS, signalling that Kenya is far behind some of its regional peers.

The comparative experiences from the above countries highlight a few strategies for more effective MTRS implementation. For instance, countries such as Rwanda and Egypt have high-level political commitment and support, including clear direction from the Executive and the National Treasury, which helped tax reforms maintain momentum. Crucially, more successful countries show that strengthening tax administration as a priority is a key indicator of MTRS success. For example, Senegal prioritised establishing a Large Taxpayers Unit and upgrading its information technology (IT) systems, which has yielded higher revenue collection.

In conclusion, Kenya’s MTRS progress as of 2025 is a work in progress, with important reforms achieved but many still underway. Harder reforms which may be unpopular, such as motor vehicle circulation tax and taxes on agricultural produce, or those needing complex operational capacity – are lagging. Learning from peer countries’ experiences, Kenya can refine its strategy to ensure that the remaining MTRS measures are executed in an effective manner. The proposed reforms should also be implemented with due consideration of their broader socio-economic implications, and in line with constitutional principles such as public participation, for them to be well-rounded and for the government to stand a chance of implementing the MTRS successfully.

Ann Magondu (Senior Tax Manager) and Nicholas Gathecha (Senior Tax Consultant) serve in the Tax & Legal team at Deloitte East Africa. The views presented are their own and not necessarily those of Deloitte. They can be reached at amagondu@deloitte.co.ke and ngathecha@deloitte.co.ke.

This article was originially published on Business Daily here.