The government has introduced a new levy on contractors to boost tax revenue as collections decline. Beginning September 1, suppliers providing goods and services to national and county governments are required to pay this levy, as detailed in the Public Procurement Capacity Building Levy Order 2023.
In a notice authorized by John Mbadi, the Cabinet Secretary for National Treasury and Economic Planning, the Public Procurement Regulatory Authority (PPRA) informed all public sector stakeholders of this new directive.
Under the Levy Order, 2023, suppliers must pay 0.03 percent of the contract value, excluding taxes, on all agreements with procuring entities. This levy is applicable to all procurement contracts signed from September 1, 2024, including any extensions, renewals, and variations. The notice emphasized that the levy will apply to contracts and modifications signed on or after this date.
The government expects to generate at least $2 million (Kes.295.5 million) from this levy, considering that public procurement accounts for roughly 10 percent of Kenya’s gross domestic product (GDP). Despite the Kenya Revenue Authority (KRA) collecting Kes.2.407 trillion in the financial year ending June 2024—a growth of 11.1 percent from the previous year—it still missed its revenue target by Kes.130 billion.
The new levy will impact contracts involving national and county governments, state corporations, publicly-owned companies, and other entities as defined by the Public Finance Management Act, 2012. Treasury introduced the levy in 2023, asserting that it aims to strengthen public procurement systems and increase revenue collection. The levy was formally adopted after public feedback was invited on the proposal.
According to the PPRA, the levy is intended to improve public procurement practices by funding capacity development for procurement and asset disposal personnel through training, mentoring, and technical assistance. This initiative follows the PPRA’s recent efforts to streamline public tendering, including implementing a new procurement platform for publishing contract awards and tender notices. The levy will also cover long-term contracts, where Local Service Orders (LSOs) or Local Purchase Orders (LPOs) are issued as orders are placed.
Procuring entities must remit the levy through the eCitizen platform by the 20th of the following month, with a 5 percent penalty for late payments. Additionally, they must file monthly returns on deducted and remitted levy amounts with the Public Procurement Information Portal to ensure transparency and accountability.
To facilitate a smooth transition, the PPRA plans to hold stakeholder sensitization forums starting in September 2024, along with ongoing engagement and collaboration to enhance compliance with the Levy Order 2023.
