Macro factors behind stagnation in Kenya's excise tax receipts

Kenya's excise tax receipts have faced stagnation for the half-year period ending December 2024, with collections totaling Ksh141.35 billion, reflecting only a marginal 1.11 per cent increase. The macroeconomic factors behind this concerning trend were recently discussed by Declan Galvin, Managing Director at Exigent Risk Advisory, during an interview with CNBC Africa. Galvin shed light on the challenges faced by the Kenyan economy and provided insights into potential solutions to spur growth and revenue generation. One of the primary issues contributing to the stagnation in excise tax collection is the prevalence of informal and illicit markets, particularly in the alcohol, cigarette, and vehicle sectors. The misuse of KRA stamps, indicating paid duty, has raised concerns about underlying corruption within the system. This not only impacts government revenue but also erodes consumer confidence and disrupts supply chains, affecting businesses that rely on legitimate channels. Galvin emphasized the need to address corruption and enhance enforcement measures to combat illicit trade effectively. He highlighted the importance of attracting Foreign Direct Investment (FDI) to stabilize the economy and diversify export industries beyond agriculture. By leveraging FDI and promoting exports in manufacturing and professional services, Kenya can reduce its reliance on tax revenue from traditional sources. Additionally, Galvin pointed out the significance of managing inflation and disposable incomes to ensure sustainable economic growth. Despite uncertainties surrounding future tax policies, he expressed optimism for positive developments in 2025 but emphasized the need for a balanced approach to taxation and business support. Overall, Galvin's insights underscore the complex dynamics at play in Kenya's economy and the imperative of implementing targeted strategies to overcome challenges and drive progress.