In a bid to tackle climate change and reduce Kenya’s growing debt burden, the World Bank has recommended the introduction of a carbon tax and significant increases in excise duties on alcohol, tobacco, and sugary beverages.
In its latest Public Finance Review, the multilateral lender advised Kenya to implement a carbon tax on imported fuels, gradually rising to $25 per ton of CO₂ by 2030—equivalent to roughly Ksh.3,235. The tax, which would target emissions at the point of entry, is expected to generate additional revenues amounting to 0.25 percent of the country’s GDP by the end of the decade.
The World Bank notes that while Kenya’s Energy and Petroleum Regulatory Authority (EPRA) already imposes various levies. including VAT, excise duty, and road maintenance fees, these are not tailored to address carbon emissions directly. A carbon tax, it says, would not only discourage pollution but also stimulate investment in cleaner technologies and help fund adaptation efforts.
“There are climate co-benefits associated with carbon taxes, including less air pollution and, in the transport sector, fewer road traffic accidents, saving lives and reducing health costs,” the report states. The transport sector is projected to bear two-thirds of the tax burden.
The proposal aligns with Kenya’s Medium-Term Revenue Strategy (2024/25–2026/27), which has acknowledged the potential for a dedicated carbon tax.
Beyond environmental measures, the World Bank is pushing for increased excise taxes on harmful products such as alcohol, tobacco, and sugar-sweetened drinks. These substances, the report says, are increasingly linked to preventable deaths and illnesses. In 2019, consumption of these products accounted for 9.7% of all deaths in Kenya—up from 7.5% in 1990 and well above the sub-Saharan Africa average of 7.4%.
The Bank proposes a 117% tax increase on alcohol and a 50% hike on tobacco to restore taxation to 2016 levels. If implemented, these measures could raise tax revenues from the current 0.27% of GDP to 0.60%.
To balance public health goals with affordability, the report also suggests scrapping taxes on healthier alternatives like bottled water. This move, it argues, could encourage consumers to shift away from sugary beverages, while the resulting revenue loss could be offset by raising taxes on sugar-laden drinks.
Kenya’s debt-to-GDP ratio currently stands at 65.5%, and the World Bank’s recommendations are part of a broader effort to enhance domestic resource mobilization while advancing sustainable development goals.
Exchange rate: $1 = Ksh.129.25
Written By Rodney Mbua
