IMF Gives Ruto Government Fresh Tax Advice as Cost of Living Rises for Kenyans

The International Monetary Fund (IMF) has urged President William Ruto’s administration to explore alternative ways of increasing government revenue instead of raising tax rates on Kenyans already struggling with the high cost of living.

The global lender wants Kenya to expand its tax base, reduce unnecessary tax exemptions and strengthen compliance to ensure that everyone required to pay taxes meets their obligations.

The recommendation was delivered by IMF Communications Director Julie Kozack during a scheduled briefing in Washington, where she addressed Kenya’s economic challenges and the need for a more balanced approach to managing public finances.

Kozack explained that increasing existing tax rates should not be the government’s primary strategy for mobilising additional domestic revenue.

Instead, the IMF wants the government to identify individuals and businesses that should be paying taxes but are not fully complying with their obligations.

“Our focus or recommendation is that there should be a focus not so much on increasing tax rates, but on broadening the tax base,” Kozack said.

She further explained that reducing tax exemptions and strengthening compliance could help the government collect more revenue without introducing higher tax rates.

The recommendation comes at a politically sensitive time for the Ruto administration, particularly following the public opposition that greeted the Finance Bill 2024.

In June 2024, thousands of young Kenyans took to the streets to protest proposed tax increases contained in the Finance Bill. The demonstrations escalated into nationwide unrest, forcing President Ruto to withdraw the controversial legislation.

The protests also highlighted the financial pressure facing households and businesses, with many Kenyans questioning the government’s continued efforts to introduce additional taxes.

IMF outlines other measures Kenya should consider

Beyond taxation, the IMF has called for greater transparency in government spending and more targeted social protection programmes.

Kozack argued that Kenya needs a credible, balanced and equitable fiscal consolidation strategy supported by measures on both the revenue and expenditure sides.

This means the government must not only improve how it collects money but also pay closer attention to how public resources are spent.

The fund also wants vulnerable households to receive better-targeted protection as the government implements measures to address its financial challenges.

One of the areas requiring attention is tax compliance among businesses and individuals operating outside the formal economy.

Kenya has a substantial informal sector, which employs millions of people and includes small traders, service providers and other businesses.

Bringing more economic activities into the formal tax system could provide the government with additional revenue without necessarily increasing the rates paid by existing taxpayers.

However, widening the tax base would require careful implementation to avoid placing an unfair burden on small businesses and low-income earners.

Rising inflation adds pressure on households

The IMF’s recommendations come as Kenyan households face renewed pressure from increasing prices of essential goods and services.

Data from the Central Bank of Kenya’s October 30 weekly bulletin showed that annual inflation increased to 7.3% in October 2026, compared with 6.8% in September.

The increase was largely associated with higher prices in food, transport and housing-related expenses.

Food and non-alcoholic beverage prices increased by 10.2% over the year, while transport costs rose by 17.1%.

Housing, water, electricity, gas and other fuels recorded an annual increase of 3.7%.

These developments have added pressure to household budgets, particularly for Kenyans who depend on regular salaries or small businesses to meet their daily expenses.

Higher transport and food costs also affect businesses because they increase the cost of moving goods and providing services.

Consequently, the IMF’s recommendation to avoid relying primarily on higher tax rates comes at a time when many households are already adjusting their spending to cope with rising expenses.

The IMF’s latest position also comes as Kenya prepares for further engagement with the international lender over its financial and economic challenges.

The country’s previous IMF-supported programme encountered difficulties in 2025 after the ninth review failed to proceed.

In March 2025, the IMF confirmed that the review under Kenya’s Extended Fund Facility and Extended Credit Facility programmes would not proceed after discussions with the government.

The Kenyan authorities subsequently requested a new programme, with the IMF indicating that it would continue engaging with the government.

The anticipated discussions in December 2026 could therefore provide an opportunity for both sides to examine Kenya’s fiscal position, debt obligations and possible financing arrangements.

For President Ruto’s administration, the challenge will be finding ways to increase government revenue, manage public debt and finance essential services without introducing measures that further strain ordinary Kenyans.

The IMF’s message is that Kenya has other options to improve revenue collection, including closing tax loopholes, reviewing exemptions and ensuring that those legally required to pay taxes fulfil their obligations.