The conflict between high-tax redistribution and low-tax dynamism is one of the defining fault lines of national politics, and one that is currently driving a wedge through Kenya’s political landscape.
The Kenyan government has put in place a programme of aggressive revenue measures, seeking to expand state machinery and debt service. Examples include a doubling of fuel VAT to 16%, a mandatory 2.5% housing levy, and taxes on basic staples like bread.
In a nation where some live on KES 200 a day ($1.50), this rising tax burden does not come without a cost. Kenyan slum dwellers encompass approximately 60% the urban population in modern Kenya, and 88% do not have a regular source of income. Therefore, taxing enterprise to fund bureaucracy will do nothing to lower their cost of living. Real purchasing power is built when market competition drives down the price of food, energy, and water of those living in the poorest conditions in the world.
In that regard, pushing additional tax burdens onto the 15% of Kenyans in formal employment is economically unproductive. It squeezes a narrow tax base and drives businesses into the informal economy, in-turn shrinking the consumer spending needed to fuel growth. With debt payments consuming nearly 38% of state revenue and systemic corruption draining billions more, squeezing Kenya’s small formal workforce and local businesses to finance state spending is a recipe for stagnation, not equality. The result of casting a wider tax net over an already decreasing number of formal jobs wouldn’t be economic justice. However, lowering tax burdens and giving informal entrepreneurs room to build permanent value would.
Consider two hypothetical economies:
Economy A: GDP growth of 7% after deregulation around tech companies. Everyone’s income grows by 2% while top earners grow by 5%. The relative income gap widens, but the poor grow consistently wealthier and buy high-quality goods for less.
Economy B: Heavy taxation caps top earners. Incomes drop across the board, but the gap narrows. Everyone is poorer, but more equal. As a result, assets relocated, inflation rises and hiring halts.
Focusing on decreasing relative inequality leads to favouring Economy B. But no family pays their energy bills or food with a percentile ranking – they pay with real purchasing power.
Economy A, although it creates unequal prosperity, is better than equal poverty.
The Land Bottleneck:
Currently, the government’s approach to the housing crisis in Kenya relies on a mandatory housing levy. Complex government paperwork and informal land rights create a major bottleneck, preventing many from legal ownership of their land. As economist Hernando de Soto articulated in his concept of “dead capital”, millions of Kenyans own land and real estateeven within informal settlements like Kibera yet remain trapped in capital paralysis. Because these properties lack formal, legally recognised title deeds, owners cannot leverage their most valuable assets as collateral for bank loans, access formal credit markets, or build transferable generational wealth. Instead of imposing state-driven mandates, the government should accelerate land titling and aggressively deregulate planning controls. The private sector can naturally step in, unlock trillions in dormant equity, and build low-cost, market-responsive housing at scale by legally recognising property rights and removing administrative hinderances.
Regulatory harassment of the informal sector:
The state’s current view of Kenya’s informal sector, including mama mboga street vendors and boda boda riders, is a revenue stream to be extracted by county permits, overlapping licenses, and inter-county cess taxes. Although the informal economy is believed to be a tax-evasion crisis, it actually represents capitalism in its purest form: organic enterprise struggling against state-engineered friction. Radical administrative relief is necessary, including removing redundant licensing, abolishing predatory cross-border county transit taxes, and fostering a zero-tax threshold for micro-enterprises. Small traders can formalise naturally, gain legal security, and reinvest their earnings directly into business growth once the fear of state extortion is removed.
Trade Liberalisation:
High import tariffs, such as the 35% East-African Community Common External Tariff ceiling and high duties on sensitive goods, hurt everyday consumers just to protect inefficient local businesses from global competition. These tariffs entrench domestic monopolies and inflate the cost of essential household inputs, including food staples, fertiliser, and green energy technology. Unilateral trade liberalisation and the elimination of regional non-tariff barriers are critical to unlock East Africa’s economic efficiency. By enabling the unrestricted flow of affordable, high-quality imports, Kenya can break local monopoly pricing power, optimise consumer surplus, and expand the real purchasing power of its poorest citizens through dynamic market competitions rather than market-distorting state subsidies.
Conclusion: unlocking Kenya’s enterprise
Kenya stands at a critical juncture: continue down the path of state-led interventions and revenue extraction or embrace a market-driven transformation. No nation has ever taxed itself into wealth. Ultimately, Kenya’s economic future relies entirely on the drive of its entrepreneurs – from mama mboga market vendors to large-scale developers. They can only be truly unlocked by securing property rights, radical deregulation, and unilateral trade liberalisation.
Ruby McKinnon is a student looking to read HSPS at Cambridge, and has organised charity endeavours to raise money for local schools in Kenya.