EY calls for tax reforms to ease pressure on 2026/27 budget

Kenya must accelerate tax reforms and strengthen revenue collection to ease mounting fiscal pressure in the proposed Ksh.4.7 trillion 2026/27 budget, advisory firm EY has said.

In its pre-budget analysis, EY underscores the need to broaden the tax base and enhance compliance instead of introducing new tax rates, as the government seeks to finance a significantly expanded spending plan.

The budget, which is about Ksh.435 billion higher than the current fiscal year, is expected to be driven largely by rising recurrent expenditure, particularly debt servicing, alongside continued investment in programmes under the Bottom-Up Economic Transformation Agenda (BETA).

“Kenya’s economic outlook remains stable but constrained by fiscal vulnerabilities and external risks, noting with growth is projected at between 4.4 and 4.9 percent in 2026,” said Robert Nyamu, Consulting Leader and Partner for East Africa,

He added that while inflation has eased and the shilling stabilised, structural challenges, including high debt servicing costs and limited fiscal space, continue to weigh on the economy.

EY identifies digitalisation of tax administration as a key reform lever, pointing to systems such as e-TIMS and real-time revenue monitoring aimed at sealing leakages and improving efficiency.

“Shifting focus to tax base expansion, compliance and efficiency in collection will be critical in easing pressure on public finances,” said Francis Kamau, Partner and Head of Tax at EY East Africa.

Despite the reform push, the government still plans to finance the deficit through external borrowing of Ksh.146.8 billion and domestic borrowing of Ksh.684.2 billion, highlighting continued reliance on debt.

EY warns that without sustained reforms, Kenya risks deeper fiscal strain, particularly amid global uncertainties such as rising oil prices that could fuel inflation and widen the deficit.

The firm maintains that credible fiscal consolidation, improved governance and consistent policy direction will be key to restoring investor confidence and supporting long-term economic stability.