Raise Fuel Tax & Freeze Public Hiring - 4 World Bank Recommendations to Govt

Hello Moneymakers, Kubasu here. In this newsletter, we are focusing on the World Bank's recommendations to Kenya, including a carbon tax on fuel, a freeze on all public hiring, changes to PAYE taxes, and why the SHA may collapse. Also read about TSC’s 25,000 teacher promotions and summons against CSs John Mbadi and Rebecca Miano.

Fuel Price May Increase, SHA May Collapse

Fuel prices may go up if the Kenyan Government implements recent recommendations by the World Bank.

In its Public Finance Review report on Kenya released on Tuesday, May 27, the Bretton Woods institution issued a raft of proposals aimed at improving the country's fiscal sustainability. They include;

Fuel tax: The World Bank has urged Kenya to expand its narrow tax base through a carbon tax on fuel and higher excise taxes on alcohol, tobacco, and sugar-sweetened beverages. If implemented, the tax may lead to an increase in prices.
Currently, Super Petrol is retailing at Ksh174.63, Diesel at Ksh164.86, and Kerosene at Ksh148.99.

“Carbon taxation can help Kenya meet its commitments under the Paris Agreement and further curb climate change externalities. Kenya’s Medium-Term Revenue Strategy identifies the potential for a dedicated carbon tax,” the World Bank advised, noting that vehicle tax was less effective since carbon tax could yield additional revenues of about 0.25 percentage points of GDP by 2030.

Hiring freeze: The institution further urged the government to suspend all hiring for 2 years due to the growing wage bill, which strains the budget. Only the education sector was spared from the proposal due to the growing demand for teachers.

“Adopting a temporary hiring freeze can make space for the government to review the compensation structures and assess the efficient allocation of existing civil servants,” the review stated, adding, “As a significant number of civil servants will retire in the coming years, there is an opportunity to reassess staff allocations across institutions.”

PAYE Review: The institution proposed changes to Kenya's Personal Income Tax (PIT) by adjusting tax bands that determine how much PAYE is paid. If implemented, Kenyans earning Ksh24,000 monthly will pay 10 per cent PIT, while those earning between Ksh32,333 and Ksh24,000 will see their PIT reduced to 15% from 25%.

“Given the small contribution from below-average earners, shifting the tax burden from low-income earners to the top income deciles is expected to have a minimal impact on revenues, yet would make the tax system more progressive,” the World Bank noted.

Proposed PAYE Structure:

• Up to Ksh288,000/year (Ksh24,000/month): 10% tax – no change
• Ksh288,000 – 388,000/year (Ksh24,000 – 32,333/month): Tax reduced from 25% to 15%
• Ksh388,000 – 2 million/year (Ksh32,333 – 166,663/month): Tax reduced from 30% to 25%
• Ksh2 million – 6 million/year (Ksh166,663 – 500,000/month): Tax increased from 30% to 32.5%
• Ksh6 million – 9.6 million/year (Ksh500,000 – 800,000/month): Tax increased from 32.5% to 35%
• Above Ksh9.6 million/year (Over Ksh800,000/month): Tax increased from 35% to 38%

SHA May Collapse: The World Bank has cautioned the Kenyan Government that the Social Health Authority (SHA) risks collapsing if the current approach to its funding is not reviewed.

In its latest report titled Public Finance Review (PFR) released on May 27, the World Bank stated that the sustainability of the Social Health Insurance Fund (SHIF) is undermined by Kenya’s largely informal labour market, the majority of whom do not contribute—putting the government's annual target of Ksh157 billion at risk.

“SHIF is a contributory scheme financed through mandatory payroll deductions (2.75 percent) from employees in the formal sector. Workers in the informal sector, who account for up to 80 percent of the national workforce, are mandated to contribute 2.75 percent of their household income, but the majority do not contribute. As a result, SHIF is projected to collect only 67 billion Kenyan shillings per year—far below the target of 157 billion Kenyan shillings,” the report stated.

“The government plans to subsidize contributions only for indigent households, leaving a large portion of the population unfunded. Moreover, the payroll tax design discourages formalization, particularly for low-wage workers and small employers who face higher costs when joining the formal sector. This creates a structural contradiction: SHIF depends on formalization to succeed, yet it actively undermines it.”

The World Bank has therefore recommended that the government focus SHIF collections on formal sector workers and finance contributions for informal workers and poor populations.

Here are other top stories this morning;

Trump Orders All Embassies, Including Nairobi, to Halt Scheduling Students for Interviews

The Trump administration has ordered U.S. embassies, including the Nairobi branch, to stop scheduling new student and exchange visa appointments as it prepares to expand social media vetting, Reuters reported. An internal cable from Secretary of State Marco Rubio says current appointments can continue, but new slots should be removed. The State Department is reviewing its screening processes and will issue updated guidance soon. This is part of a broader immigration crackdown.

KRC Spends Ksh17 Billion on Wagons to Curb Cargo Delays

A report by Business Daily has shown that Kenya Railways Corporation (KRC) spent Ksh17.08 billion last year to buy wagons and vans from China in a bid to reduce delays in cargo transport that were affecting freight revenue due to limited capacity.

This was KRC’s biggest yearly investment since the launch of the Standard Gauge Railway (SGR) freight and passenger services in 2017–18, aimed at reversing cargo business losses caused by occasional shortages of wagons.

TSC Promotes 25,000 Teachers After Waiving Requirement

The Teachers Service Commission (TSC) has promoted 25,252 teachers, waiving the usual requirement of serving three years in one grade due to a shortage of qualified candidates. Of these, 5,291 teachers were promoted without meeting the time threshold, mainly to fill principal and deputy headteacher roles where demand exceeded supply.

As per the Standard, the waiver, which temporarily allowed promotions after just six months in one grade, followed a Sh1 billion allocation by the National Assembly—enough to cover only 5,690 posts. TSC said the move was necessary to fill leadership gaps and reduce the number of teachers serving in acting capacities.

Auditor General Exposes How Kenya Was Forced to Pay Ksh6B for Underutilised Loans

Auditor General Nancy Gathungu highlighted billions lost due to low absorption of foreign loan funds in donor projects, with Ksh 6.6 billion wasted in commitment fees over the past four years. In 2023/2024, 59.1% of allocated funds went unused, leading to penalties on projects like the East Africa Skills Transformation and major road constructions.

The audit session grew heated as MPs questioned fund management, especially the Hustler Fund, which Gathungu said suffers from poor tracking and systemic issues. These findings, as reported by Citizen TV, expose serious gaps in fund utilization and accountability, resulting in significant public money wastage.

CSs John Mbadi and Rebecca Miano Summoned

MPs have summoned Treasury CS John Mbadi and his Tourism counterpart Rebecca Miano to clarify the Ksh4.5 billion earmarked for the Bomas of Kenya renovations. While Mbadi claims the Tourism department allocated the funds, Miano says Bomas is outside her ministry’s scope.

The Budget and Appropriations Committee and the Tourism and Wildlife Committee have delayed approval until clarity is provided. Miano revealed that Bomas falls under the Ministry of Gender, Culture, Arts, and Heritage, per Executive Order No. 2 of 2023.

According to People Daily, the confusion arises amid financial challenges in the tourism sector, including stalled projects like Ronald Ngala Utalii College and underfunded institutions like the Tourism Research Institute. MPs question whether the Bomas renovations should be a priority, especially when a Turkish firm, Summa Turizm Yatirimciligi Sirketi, is said to be financing the works via a Ksh31.6 billion PPP deal.