BY ZAINAB SAID | 5484 MEDIA | NAIROBI, KENYA
STORY HIGHLIGHTS
- Kenya missed Sh342 billion in tax revenue over two years despite aggressive policy changes
- Government shifts focus from new taxes to administrative and digital reforms in 2025
Kenya’s drive to raise domestic revenue is facing renewed scrutiny after official figures revealed persistent and widening shortfalls, despite multiple tax policy changes over the past two years. A new analysis by the Parliamentary Budget Office (PBO) paints a sobering picture: ambitious tax measures have failed to deliver, leaving the government increasingly dependent on borrowing to finance its budget.
Between 2023 and 2025, the Exchequer missed its revenue targets by a cumulative Sh342 billion, raising questions about the sustainability, design, and implementation of Kenya’s tax strategy.
Big Targets, Bigger Gaps
According to the PBO’s 2025/26 Budget Watch Report, repeated amendments to tax laws have not translated into stronger collections.
The Finance Act 2023 targeted an additional Sh211 billion but fell short by Sh205 billion.
The Finance Bill 2024 aimed to raise Sh346 billion, but collections lagged amid nationwide protests that culminated in the storming of Parliament on June 25, 2024.
The Tax Laws (Amendment) Act 2024 sought Sh79 billion, yet still missed the mark by Sh137 billion.
The PBO says these outcomes point to deeper, structural weaknesses in tax administration rather than a lack of legislative effort.
Overtaxation, Evasion, and Public Resistance
One of the clearest signals emerging from the report is that higher taxes do not automatically lead to higher revenue. Instead, the PBO warns that aggressive taxation has fuelled evasion, compliance fatigue, and growing public resistance.
Economist Onesmus Kiema notes that shrinking disposable incomes are eroding the very base on which tax collections depend.
“The people who drive the economy through spending are the employed population. But their payslips have been eaten into by taxes. When people don’t have money to spend, circulation of money in society slows almost to zero,” Kiema explains.
As consumer spending weakens, businesses—particularly small and medium enterprises—also struggle, further shrinking the tax net.
ETims and the Small Business Burden
The rollout of the Electronic Tax Invoice Management System (ETims) has improved transparency and formal compliance, but analysts say it has also exposed vulnerabilities among small traders and informal businesses.
While larger corporations can absorb compliance costs, many small enterprises—often dependent on big firms for contracts—are finding the system costly and complex. Critics argue that without parallel support measures, digital enforcement risks pushing vulnerable businesses out of the market rather than into compliance.
A Shift in Strategy for 2025
Facing mounting pressure, the government has recalibrated its approach for the current financial year. The Treasury now targets Sh3.3 trillion in revenue—an increase of just Sh30 billion, signalling a more cautious stance.
The Finance Act 2025 marks a notable shift away from introducing new taxes. Instead, it prioritises: Administrative reforms, Digital transformation of revenue systems and Improved efficiency and voluntary compliance
This change suggests official recognition that policy design and execution matter as much as tax rates themselves.
What the PBO Recommends
To reverse the trend, the PBO is calling for a fundamental overhaul of how taxes are collected and managed. Key recommendations include:
- Full digitalisation of revenue collection processes
- Upgraded ICT infrastructure and stronger data governance
- Simplified tax procedures to improve compliance
- Enhanced audit capacity and inter-agency coordination
“These measures will create a more transparent, responsive, and efficient tax ecosystem that aligns with the evolving needs of Kenya’s economy,” the PBO states.
Balancing Revenue and Economic Stability
As Kenya looks toward 2026, the central challenge remains striking a balance between raising revenue and protecting economic activity. For taxpayers, the hope is that ongoing reforms will ease pressure on households and businesses—while ensuring accountability and value for money in how public funds are raised and spent.
