A Kenyan parliamentary panel has recommended that the government scrap new taxes on items like cars and bread that were proposed as part of next year's budget, its chairman said, as protesters angered by the measures took to the streets in the capital.

The tax changes contained in the government's funding bill for the 2024/25 fiscal year are the latest effort by President William Ruto's administration to boost revenue and reduce borrowing. Last year, it introduced a housing tax and hiked contributions to the national health scheme in moves that also triggered protests.

"We have listened to the view of Kenyans ... we need to protect Kenyans from increased cost of living," Kimani Kuria, chairperson of parliament's finance committee, told reporters after a meeting of lawmakers from Ruto's governing coalition.

He said the finance committee recommended scrapping a new tax on motor vehicle ownership, doing away with increased taxes on financial and mobile phone service charges and not introducing value added tax on bread as proposed in the bill, first introduced in parliament in May.

As he spoke, Reuters witnesses saw police fire teargas to disperse hundreds of protesters demonstrating in areas near the parliament building.

"We can't even afford diapers for the kids anymore ... we need this government to do something," Muthoni Wanjiku, one of the protesters, told Reuters.

Adamson Bungei, Nairobi County Police Commander, did not immediately respond to a request for comment.

Opponents of the latest tax hikes include bankers, manufacturers and the Law Society of Kenya, who say they could strangle the economy.

On Wednesday and Thursday lawmakers will hold a line-by-line debate on the legislation underpinning the budget, after which it will pass to Ruto to be signed into law.

This year's finance bill aims to raise an extra 346.7 billion Kenyan shillings ($2.71 billion) in additional revenue, finance minister Njuguna Ndung'u said last week.

Some taxes in last year's finance law, including the housing levy, are still being challenged in court.

($1 = 128.0000 Kenyan shillings)

(Additional reporting by Jefferson Kahinju; Writing by George Obulutsa and Duncan Miriri; Editing by Alexander Winning and Christina Fincher)