- Basic data
- Public finances and the state budget
- Banking system
- Tax System
Kenya’s GDP grew by 5%, one of the fastest growths in Sub-Saharan Africa, mainly thanks to the easing of pandemic restrictions and the resurgence of private consumption. The results in agriculture were nevertheless 0.5% lower (year on year), due to lower than usual rainfall. The gradual vaccination of the mainly urban population in Kenya contributed to a gradual economic recovery and in the third quarter of 2021 to normalization, especially in the tourism sector. Hotel occupancy more than tripled from mid-2020 to the end of 2021, but still falls short of pre-pandemic levels. Check ebizdir for economical facts of Kenya.
|GDP growth (%)||5.4||-0.5||6||4.5||5|
|Export of goods (billion USD)||5.9||5.9||6.6||6.8||7.1|
|Import of goods (billion USD)||16.6||15.6||17.7||18.6||19.3|
|Trade Balance (Billion USD)||-10.7||-8.4||-11.1||-11.8||-12.2|
|Industrial production (% change)||4.6||-1.4||5.4||4.4||5.2|
|OECD export risk||06.VII||06.VII||06.VII||ON||ON|
Source: EIU, OECD, IMD
Public finance and state budget
|State budget balance (% of GDP)||-8.2|
|Public debt (% of GDP)||63.9|
|Current account balance (billion USD)||-6.4|
In 2020, Kenya was forced to respond to restrictive measures due to the COVID19 pandemic by temporarily reducing taxes (VAT from 16 to 14%), followed by a budget revision and the allocation of additional funds to the health and social protection sector. During the second half of 2021, these measures were gradually abolished and taxes returned to their original values.
Fiscal consolidation will be critical for Kenya in the coming years, as the country’s indebtedness, also due to the effects of the pandemic, is growing to alarming and unsustainable proportions. A debt-to-GDP ratio of 74.3% is expected in 2022, before a relative decline in indebtedness to around 70% in 2023.
To complement the increasing budget reconciliation, Kenya drew on the so-called Extended Fund Facility and Extended Credit Facility from the International Monetary Fund (IMF) in 2021, which gave the country access to $billion in low-cost financing over the next three years. Kenya is expected to issue its next EUROBOND next year to cover its financing costs for the coming years.
Up to one third of Kenya’s debt is contracted with Chinese banks, mainly Exim Bank. After postponing repayments in January 2021, China managed to pressure Kenya to pay at least the interest on the debt in September 2021, in the amount of approximately USD 264 million. Other lenders fail to do so. The main reason was the government’s need to complete the infrastructure projects under construction, mainly in Nairobi, which are meant to be a memorial to the outgoing President Kenyatta.
The Central Bank of Kenya (CBK) is the main regulator of the banking sector. The primary classification of banks in Kenya is by ownership. Some banks are owned by local owners or companies, while others are owned by foreign owners or organizations.
The Central Bank of Kenya, which governs banks, further classifies as commercial banks according to their assets.
Tier 1 banks are large banks that have hundreds of billions in local currency assets and are unlikely to fail financially. They are the best banks in Kenya.
Tier 2 banks are medium-sized banks, while Tier 3 consists of small banks.
Currently, there are 28 domestic and 14 foreign commercial banks with branches across the country; one mortgage finance company; eight foreign bank offices; eleven licensed deposit-taking micro-finance institutions; 49 insurance companies; a postal savings bank with a large network of branches across the country; and approximately 200 licensed deposit-taking Savings and Credit Co-operative Organizations (SACCOs) with a membership of over 3 million Kenyans. However, the banking sector is basically dominated by seven tier 1 commercial banks, namely Equity Bank, Kenya Commercial Bank, Barclays Bank of Kenya, Diamond Trust Bank, Cooperative Bank, Central Bank of Africa and Standard Chartered.
With the advent of mobile banking and integration into formal banking systems, the number of Kenyans with access to electronic financial services has grown rapidly. Mobile banking platforms are used to offer health insurance, micro-loans, transfer money to a prepaid credit card and even pay bills for parking, electricity and water. Short-term loans are also provided on mobile money platforms with a minimum repayment period of thirty days. The most widely used mobile money operator is Mpesa from telco Safaricom.
Kenya’s capital market is also expanding. While Treasury bills and bonds dominate the short-term securities market, trading in commercial securities takes place in smaller volumes. However, the sector has seen increased activity through the issuance of corporate bonds, the creation of collective investment schemes (mutual funds, investment clubs, mutual funds and employer share ownership plans), asset-backed securities and venture capital funds.
The Republic of Kenya derives most of its revenue from income tax, value added tax (VAT), excise duty and customs duties.
Kenya has a residence-based tax system (common international practice), whereby residents are taxed on their worldwide income, while non-residents are taxed only on their Kenyan income.
Taxation of natural persons
Taxable Income – Income includes income from employment, profits from the exercise of a trade, business or profession; capital gains; dividends; interest; and non-monetary benefits, advantages or facilities obtained through earnings.
Corporate income tax
Corporate income tax 30% (mostly)
Tax for branches of foreign companies 37.5%
Capital gains 5%
The tax rate for local motor vehicle assembly plants and plastic recycling companies is 15% for the first five years of operation. Basis – For all companies – income arising in or derived from Kenya (ie income from Kenya) is taxable.
Taxable Income – Taxable income is the gross income earned during the tax year, minus the total allowable deductions. All taxpayers must register with KRA (Kenya Revenue Authority) through online filing.
If the company’s turnover exceeds the threshold for VAT registration, the taxpayer must also register and pay VAT, which is 16% of the CIF value (cost, insurance and freight).
There is a duty to pay for imports into Kenya
– VAT (see above)
– import declaration fee (import declaration fee) 3.5%
– import duties (import duties) depending on the type of goods: 0%, 10%, 25%.
– in the cases defined in the “Kenya Excise Duty Act 2015”, it is also necessary to pay the luxury goods tax (Excise tax) and this is determined according to the Common External Tariff of the East African Community (the EAC Common External Tarrif – CET).
Public finances in Kenya are and will remain in deficit next year. On the other hand, the tax authorities will, under pressure from the government, increase the success rate in tax collection, which is low in Kenya due to the widespread gray economy and does not cover a significant part of economic activities. Kenya has so far not been successful in expanding the tax base, and therefore it is not unusual to introduce fees even retrospectively.