Strategic Goal: Sustainable financing and fiscal policy credibility

Objective 1: To maintain fiscal sustainability

In order for the Ministry to maintain fiscal sustainability, there shall be a need to continue implementing measures aimed at ensuring prudent Government spending and investing activities and how these are financed through taxes, debt and other sources.

Strategies

• Ensure nominal value of debt to GDP is maintained within the thresholds as set out in the Charter for Fiscal Responsibility FY 2021/22 – FY 2025/26.

• Maintain a sustainable fiscal deficit as set in the Charter of Fiscal Responsibility.

Objective 2: To achieve potential GDP growth

In order for the Ministry to maintain a steady GDP growth rate, there shall be a need to continue implementing measures aimed at sustaining economic growth recovery and promoting inclusive growth. MoFPED will strive to increase the current GDP growth rate to between 6% and 7% by 2024/25.

Strategies:

• Ensure improved productivity within the economy by:

• Developing and implementing policies to promote private sector growth

• Maintaining public domestic borrowing within the PDMS thresholds

• Enhancing resource allocation to key strategic sectors.

• Taking advantage of regional integration through the EAC, COMESA and AfCFTA.

Objective 3: To maintain macroeconomic stability

To ensure macroeconomic stability and mitigate impacts of external shocks to the economy, the Ministry shall implement measures aimed at reducing the inflation rate to the medium target  of 5% and maintain adequate foreign exchange reserves.

Strategies:

• Maintain single digit inflation.

• Maintain adequate foreign exchange reserve cover

Objectives 4 To Increase efforts in domestic revenue mobilization

To ensure sustainable financing of Government expenditure needs through a reasonable, realistic and practical approach by increasing the domestic revenues by 0.5% of GDP annually. 

Strategies:

• Improving tax policies to create a sound and buoyant tax system that continues to promote industrialisation, social welfare, and private sector development. This ensures that revenues are raised in a fairer and more balanced way and generated as growth occurs by broadening the tax base.

• Lifting the capacities of the revenue administration entities – including Local Governments, ensuring that revenue is raised in an economically efficient way and reducing the compliance burden for individuals and businesses.

• Improving citizen perceptions of taxation, by ensuring a robust fiscal social contract between taxpayers and Government. This involves demonstration of value for money in Government expenditures in such a way that citizens perceive a closer link between taxes paid and services obtained..

• Enhancing transparency and accountability in the tax system, by increasing involvement of key tax policy design and implementation.

Objective 5: Improve the progressiveness and fairness of the tax system

Strategies:

• Review the personal income tax exemptions (especially for public officials) and expatriates and consider their removal.

• Review the personal income tax thresholds and bands to ensure that the tax system does not unfairly reduce disposable income.

• Dvelope a stronger policy to encourage savings and investment, particularly for retirement.

• Implement a simplified presumptive tax regime, well rationalized to achieve progressiveness, reduce the burden of tax administration and compliance as well as encourage formalization of SMEs.

Objective 6: Refocussing the Excise Duty regime to internalize externalities while maximizing revenue generation

Develop and adopt a more holistic approach to excise duties focused on the core objective of addressing externalities.

Strategies:

• Develop a broader environmental tax regime to cover a wider scope of pollutants to reduce the harmful impact ion health, wellbeing and the environment.

• Rationalize multiple excise duty rates, by designing an alternative incentives regime for promoting the use of local content.

• Introduce and enforce strict regulations with regards to the production, distribution and consumption of alcohol and other excisable products.

• Adopt inflation indexing to ensure that rates are reviewed and adjusted frequently.

• Review and adopt an EAC-wide policy on harmonization of excisable products and the applicanle rates.

Objective 7: Develop a strong extractive industry taxation regime

Strategies

• Review the fiscal regime and adjust to fully capture revenue streams and the full value chain of the wextractive and mining sector.

• Adjust the Income Tax Act to optimize the calculation of chargeable income for petroleum companies.

Objective 8: Provide the right incentives to support industrialization and development of domestic value chains

Strategies

Establish an appropriate, evidence based Tax Expenditure Governance Framework to limit leakages and improve transparency. The framework should specifically;

• Specify the criteria for approval of new tax expenditures and sustenance of existing ones

• Put in place minimum requirements for initiating new tax expenditures and guidelines for monitoring existing ones.

• Streamlines the authorizing environment by clarifying on the roles and responsibilities of the entities involved in the governance of tax expenditures.