World Bank Urges Kenya to Raise Excise Taxes to Clear Mounting Pending Bills
The World Bank Urges Kenya to Raise Excise Taxes
World Bank has pressed the Kenyan government to consider raising the excise duties as a part of a wider measure to eliminate its mounting backlog of unpaid bills and also to enhance financial stability. This was advised in the latest report of the World Bank, which is the Africa Pulse and examines the economic trends and growth in Sub-Saharan Africa.
The report indicates that the increasing pending bills in Kenya which have soared to Ksh.526 billion in June 2024, compared to Ksh.421.6 billion in March, is a very big menace to the business and employment.
Also Read
Kenya Suspends Avocado Sea Exports to Protect Crop Quality and Market Standards
AfroQuality Opens in Nairobi to Propel African Brands onto the Global Stage
Tala Expands Financial Services into Latin America with Launch in Guatemala
The World Bank cautioned that the accumulating arrears could strangle suppliers, destroy confidence of the businesses, and hinder the process of recovering its economy.
In order to counter these issues, the lender recommended Kenya to settle current liabilities and use increased consumption taxes to settle it. It has highlighted that there should be fiscal reforms such as specific adjustments in taxation so as to regain budget credibility and prevent economic distortions that will hamper growth.
The report suggested gradual disappearance of tax exemption on low-volume products and raising excise tariffs on the products that have negative environmental or health impacts such as alcohol, tobacco and beverages sweetened with sugar. According to the Bank, these measures would not only create more revenue, but also spread healthier eating habits.
Moreover, the World Bank emphasized that Kenya also needs a mix of fiscal, governance, and structural reforms to propel Kenya to experience growth that is engineered by productivity, increase the number of jobs, and regain people confidence in government spending. The report said to deploy a mix of fiscal, governance, and structural policies in order to achieve growth of productivity, quality employment, and fiscal space.
This warning is offered when the National Treasury is under increasing pressure to audit and clear legitimate pending bills, which have swollen across its major ministries. Margaret Nyakang’o the Controller of Budget (CoB) disclosed that the pending bills had increased by K sh. 9 billion in the previous year.
At the helm of the list of defaulters is the Ministry of roads and transport with Ksh.21.3 billion in fines on top of the already existing arrears of Ksh.121.8 billion. The Kenya Rural Roads Authority (KeRRA), Kenya National Highways Authority (KeNHA) and Kenya Urban Roads Authority (KURA have also amassed billions of unpaid debts. On the same note, the Ministry of Energy has debts of Ksh.1 billion through its agencies such as the National Oil Corporation of Kenya and KenGen and the Ministry of Health has outstanding debts of Ksh.1.5 billion under Kenya Medical Research Institute (KEMRI).
The most recent demand made by the World Bank is in line with its previous demand in May 2025 of Kenya to implement a carbon tax as part of its climate and fiscal changes. The lender came up with a progressive carbon tax on imported fuels, which would increase to 25 dollars per ton of CO2 (or about Ksh.3,235) by the year 2030. It said that the move would generate the same revenue as 0.25 percent of the GDP and aid Kenya in its endeavor to maintain environmental sustainability.
The debt burden of Kenya is a burning issue and it is estimated that, public debt in Kenya is currently worth Ksh.11.81 trillion, Ksh.6.3 trillion of it is domestic and Ksh.5.48 trillion is foreign. Worryingly, ten percent of the total revenue slated to be received is allocated to debt servicing, and there is little funds left to spend on development.
Civil societies and human rights groups have not been left behind who have been demanding transparency in government borrowing. They are pushing the state to stop supplementary budgets, abolish the National Government Constituencies Development Fund (NG-CDF) and ensuring that all loan agreements are publicized. These groups claim that the domestic borrowing process is also skewed to favor rich lenders at the expense of the poor as it further increases the level of inequality by sending the poor to the rich.
The recommendations given by the World Bank emphasize the tight margin between increasing revenue and keeping the population affordable as Kenya is experiencing a growing fiscal strain.
Such reforms would be a way of restoring the financial stability to the country; however it might be a catalyst to a national argument on whether new taxation will affect the already tight households.
