Tax Reforms in Kenya: Reforming Value Added Tax
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- PublicationFARMERS’ WILLINGNESS TO CONTRIBUTE TO CIRCULAR ECONOMY: A FRAMED FIELD EXPERIMENT FROM KENYA(AERC, 2026) Neda Trifkovic; Nathan Remcho; Joshua Laichena; Francis Kaloi; Jecinta Anomat Ali; Hillary WakhunguTackling climate change requires scaling up circular economy practices. However, there is little guidance on how this can be done in resource-scarce settings such as sub-Saharan Africa (SSA), where most of the population relies on agriculture for livelihoods but faces challenges related to agricultural waste disposal. This study posits that an effective way of boosting circular economy practices is to promote conversion of biowaste to biochar and explores the acceptance of this idea among Kenyan smallholder tomato farmers. The study uses a randomized information-based intervention that conveys important facts about tomato biowaste and its conversion to biochar. Measured immediately after the intervention, the results show that farmers who received information about biochar are more likely to support relevant policies and the adoption of this practice, even if it is costly. Message framing plays an important role in shaping acceptance. Collective information more strongly increased policy support – a subsidy in particular, and public goods contributions, which capture intention to support collective biochar production. The individual framing significantly increased willingness to pay for own-farm biochar production. The implications of this study are twofold. First, it indicates a strong role of information and in particular collective message framing in eliciting support for public policies targeting the circular economy and climate change. Second, this study reveals that at present, there is interest in both collective and individual biochar production from tomato biowaste in Kenya. However, investments in collective facilities require transparency in assessing personal gains from collective effort. These findings are useful for policymakers when devising policy instruments and gauging the costs of public investment in the circular economy.
- PublicationREDESIGNING THE EXCISE TAX SYSTEM IN KENYA: TAXATION OF PETROLEUM PRODUCTS(AERC, 2026) Simon Basescu; Rose Ngugi; Alex Oguso; Nathan Remcho; Zainabu RonoThis paper examines the structure, implementation, and socioeconomic impact of petroleum pricing in Kenya, with a particular focus on excise taxation. As a major source of government revenue, the petroleum excise tax plays a critical role in financing public expenditure, while also exerting significant influence on inflation, transportation costs, and broader economic activity. The study begins with a review of Kenya’s regulatory framework for petroleum pricing and situates it within a regional context. The paper evaluates how changes to the excise tax affects both government revenues and the differential impact to households across income groups, using data from the Kenya Continuous Household Survey (KCHS). It also presents simulated policy scenarios to explore the trade-offs between fiscal revenue and socioeconomic outcomes. The discussion further considers substitution effects, behavioural responses, and long-term economic and environmental implications. Overall, the findings provide evidence to support the development of petroleum tax policies that are both fiscally sustainable and socially equitable.
- PublicationDETECTING TRADE FRAUD RISK AND ASSESSING REVENUE LOSS – THE CASE OF KENYA(AERC, 2026) John Rand; Nathan Carter Remcho; Finn Tarp; Thomas Westergaard-Kabelmann; Clement OtindoThis paper examines cross-country distributional patterns in CIF-FOB trade unit value ratios to identify risks of import undervaluation and overvaluation. Building on these patterns, we develop a Trade Fraud Risk Index (TFRI) that ranks countries by their exposure to trade fraud and allows tracking of risk over time and across sectors. Using trade unit values and trade volumes, and incorporating WTO tariff rates, we assess both the magnitude of CIF-FOB value gaps and the associated potential customs revenue losses at the HS 4-digit level. To complement the quantitative analysis, we incorporate qualitative fieldwork conducted at the Port of Mombasa in 2024, including interviews with clearing agents, CFS personnel, truck drivers, and port workers. These field insights illuminate the mechanisms through which misreporting, undervaluation, misclassification, and bribery occur in practice. The qualitative evidence helps explain how fraud persists despite improvements in Kenya’s overall TFRI performance and provides context for sector-specific value gaps identified in the data. Applied to Kenya, the TFRI shows a marked improvement in trade fraud risk between 2005 and 2019, accompanied by a decline in estimated tariff revenue losses. The fieldwork findings, however, highlight persistent vulnerabilities within customs verification and inspection processes. Together, the TFRI and qualitative assessment offer actionable tools for customs administrations seeking to identify, understand, and mitigate trade fraud both internationally and domestically.
- PublicationPOLICY NOTES FOR FINANCE BILL 2026(AERC, 2026)The policy notes in this document are compiled based on guidance from the National Treasury & Economic Planning (NTEP) of the Government of Kenya and key stakeholders in the GOK-AERC-UCPH-DERG Collaborative Research Project, including members of the Project Steering Committee (PSC). The 2025 Policy notes document was comprehensive in addressing completed, ongoing, and planned studies under the Collaborative project. The present 2026 notes are focused on the four in-depth studies delivered as revised/2nd round drafts during March 2026 in accordance with the updated planning matrix dated 4 March 2026, and reflecting inputs from the November 2025 Stakeholder meeting and the work of the research teams since then.
- PublicationEconomic Complexity and Industrial Policy in Kenya(AERC, 2025) Malot, Kenneth; Mutuku, Cyrus; Otindo, Clement; Rand, John; Shibia, Adan; Sørensen, Bjørn BoKenya Vision 2030 aims to transform Kenya into a globally competitive economy, but its current export performance constitutes a significant impediment to realizing this objective. By systematically accounting for supply- and demand-side factors, this study identifies new products that can help to diversify and upgrade Kenya’s economy. In a supply-side analysis, we first use economic complexity methods to identify 70 complex target products - primarily in the Machinery & Electronics and Metals sectors - that Kenya can learn to export competitively given the current structure of its economy. In a demand-side analysis, we then use gravity models to predict a high export potential among target products in sectors like Vehicles & Transport Equipment, Machinery & Electronics, Chemicals, and Metals. We predict that many of Kenya's current trade partners could be key importers of the target products, but we also find a high demand in several underexploited markets such as Australia, Canada, Italy, Japan, Nigeria, South Africa, Spain, and Zambia.