Kenya Treasury flags budget strain, clarifies bill
May 25, 2026 at 13:10 UTC
Key Points
- Kenya’s Treasury warns budget pressures may force spending cuts in the next fiscal year
- Debt service and salaries are set to absorb over two thirds of projected tax revenue
- The 2026–2027 budget is estimated at 4.8 trillion shillings amid tight borrowing options
- Treasury denies new 25% mobile phone excise and explains current 55.5% tax burden
Treasury flags tightening fiscal space
Kenya’s National Treasury has warned that rising debt-service costs, limited scope for new taxes and constrained borrowing options may force spending cuts in the next fiscal budget. The warning underscores growing pressure on the country’s fiscal space as more revenue is committed to mandatory payments.
For the budget year starting in July, the Treasury has set a tax-collection target of 3.63 trillion shillings. According to its figures, about 40% of this amount is earmarked for loan repayments, while roughly 27% is allocated to government salaries, leaving less room for other expenditures.
Budget targets and medium-term outlook
Alongside the immediate revenue target, the Treasury has indicated that the 2026–2027 financial year budget estimate stands at 4.8 trillion shillings. The combination of higher projected spending and already tight fiscal space reinforces the risk that adjustments on the expenditure side may be required.
With debt servicing and the public wage bill taking a large share of projected revenues, the Treasury has highlighted that remaining funds must cover a wide range of government programmes. This balance is becoming more difficult to manage given borrowing constraints and limited additional tax levers.
Clarifications on the Finance Bill 2026
On May 25, ahead of the finalisation of the Finance Bill 2026, the National Treasury issued a statement addressing public concerns about the proposed legislation. It said the Bill does not impose a 25% excise duty on mobile phones, countering reports that such a charge was being introduced.
The statement also confirmed that a previously discussed 5% reduction in Pay As You Earn (PAYE) tax for workers earning 30,000 shillings was not included in the Finance Bill 2026. This clarification outlined which ideas had been left out of the draft as it moves through the legislative process.
Existing tax burden on mobile phones
In its May 25 clarification, the Treasury detailed the current tax profile faced by mobile phones in Kenya. Handsets are already subject to 16% value-added tax, 10% excise duty, 25% import duty, a 2.5% import declaration fee and a 2% railway development levy.
The combined impact of these taxes and levies amounts to an estimated 55.5% tax burden on mobile phones, according to the Treasury. By publishing these figures, officials sought to show the existing cost structure rather than signal any new levies on the sector.
Messaging on tax administration and public debate
Treasury Cabinet Secretary John Mbadi urged political leaders to stop spreading misinformation about the Finance Bill 2026. He emphasised that the Bill is intended to improve tax administration, rather than to introduce punitive or hidden taxes.
The call for accurate communication comes as the government works to reconcile the need for revenue with concerns over the tax burden and spending cuts. Treasury messaging links the bill’s administrative focus with the broader effort to manage debt-service obligations and maintain fiscal stability.
Key Takeaways
- Kenya’s fiscal outlook is dominated by high debt service and wage costs, leaving limited space for discretionary spending even as budget estimates grow.
- The National Treasury is signalling that expenditure cuts are a likely tool to balance the budget, given constraints on both new taxes and additional borrowing.
- Clarifications around the Finance Bill 2026 show a focus on tax administration and transparency, while leaving existing high levies, such as on mobile phones, largely unchanged.
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