MPs urge Treasury to scrap tax waivers to save Sh300 billion

In a renewed effort to reduce the country’s widening budget deficit, a parliamentary committee has called on the National Treasury to scrap tax waivers and exemptions, arguing that doing so could save the government more than Sh300 billion in the next financial year.

The National Assembly’s Budget and Appropriations Committee (BAC) wants the Treasury to remove Value Added Tax (VAT) exemptions, which they say are denying the government crucial revenue.

This recommendation is part of a report on the Division of Revenue Bill, 2025, tabled in Parliament on April 1.

“We have recommended that the Treasury eliminates tax waivers or tax exemptions,” committee chairperson Samuel Atandi said on Tuesday, noting that the proposal is aimed at boosting government revenue and closing the deficit.

The Division of Revenue Bill, 2025, outlines how revenue collected by the national government will be shared between the two levels of government in the 2025/26 financial year.

The Bill projects the total shareable revenue to reach Sh2.825 trillion.

Out of this amount, the BAC has recommended Sh2.4 trillion for the national government, Sh405.1 billion for county governments, and Sh10.58 billion for the Equalization Fund.

Atandi explained that part of the Equalization Fund allocation includes Sh7.85 billion for the year 2025/26, with an additional Sh2.74 billion set aside to pay off existing arrears.

“The Bill proposes an allocation of Sh7.85 billion to the Equalization Fund and a further allocation of Sh2.74 billion in the financial year 2025/26 as partial payment of arrears to the fund,” he said.

BAC’s proposal for county allocations is based on the Commission on Revenue Allocation (CRA)’s suggestions, which stood at Sh417.4 billion.

However, the actual figure in the Bill is Sh405.1 billion.

Atandi attributed the Sh12.3 billion shortfall to a difference in the calculations used by the Treasury and CRA.

He noted that the reduction was influenced by a mix of economic and fiscal factors.

“The Bill indicates that the proposed allocation of Sh405.1 billion to counties was informed by factors such as continuous underperformance of revenue by end of the fiscal year, increased expenditure for debt service, the fiscal consolidation commitments of reducing the fiscal deficit to 4.3 per cent of the GDP and the limited access to domestic and foreign borrowing,” he said.

The Sh405.1 billion proposed for counties is far lower than the Sh536.8 billion proposed by the Council of Governors, deepening the gap between the national and county governments on how much money counties should get.

The committee believes the removal of tax waivers will help the Treasury bridge the gap between spending needs and available revenue without relying on additional borrowing, which has been limited by fiscal pressures.