Kenya faces a bigger revenue shortfall in the 2017/18 financial year after lawmakers rejected a proposal by the National Treasury to increase taxes on the gambling industry.

The Parliamentary Budget Office has cautioned that tax revenue streams would slow down in the next financial year before rebounding amid economic challenges that have engulfed the East African nation.

Treasury Cabinet Secretary Henry Rotich had sought parliamentary approval to increase cumulative taxes on the gambling industry from 39.5 per cent to 50 per cent of the annual turnover. This was to shore up government revenue and limit the negative social effects of gambling on youth and the larger society.

But the proposal, which was contained in the Finance Bill 2017, was defeated on the floor of the House last week, with MPs claiming it would kill the gaming business.

The National Treasury said it is  still assessing the impact of the  policy shift on government revenues even as conservative estimates showed that the government could lose in excess of Ksh21 billion ($210 million) from the policy change.

“We have not yet computed the impact but there are other administrative measures that will help,” Geoffrey Mwau, the National Treasury director general in-charge of budget, fiscal and economic affairs, told The EastAfrican.

Dr Mwau declined to disclose the options available to the government to plug the widening budget deficit but in most cases the government has resorted to borrowing more from the domestic market through Treasury bills and bonds to make up for the shortfall.

Kenya had planned to collect Ksh1.5 trillion ($15 billion) in ordinary revenue in the 2017/2018 financial year that included additional tax revenues from the gambling industry, whose gross  revenues stand at around Ksh200 billion ($2 billion) annually, according to data from the Parliamentary Budget Office.