Kenya missing tax targets despite aggressive revenue reforms - experts

Kenya’s efforts to expand its tax base are struggling to keep pace with economic changes, as fast-growing sectors remain largely outside the tax net, stakeholders have said.

At a policy forum in Nairobi reviewing implementation of the National Tax Policy, participants said growth is increasingly concentrated in informal, cash-based and digital segments that are difficult to tax.

These include small-scale traders, gig workers, online businesses, crypto activity and rental income.

While these sectors are expanding rapidly, the tax framework has not fully caught up.

Kenya Revenue Authority estimates the informal sector accounts for over 80 per cent of employment and a significant share of GDP, yet compliance remains low.

This has left a narrow pool of formal businesses and salaried workers shouldering most of the tax burden.

“We cannot expand the tax base by continuing to tax those already in the system,” said National Taxpayers Association CEO Patrick Nyangweso.

Kenya’s tax-to-GDP ratio currently stands at about 14–15 per cent, below the government’s medium-term target of 20 per cent and the East African Community benchmark of 25 per cent.

Analysts say this reflects structural weaknesses in revenue mobilisation rather than tax policy alone.

The taxman has also not been able to keep up with new streams such as cryptocurrencies.

“What we are seeing is that the country is growing in sectors like the digital economy, things like crypto and cross-border businesses are growing fast and yet we don’t have complete guidance to tax the businesses,”  EACC director Eva Wachuka said.

Despite reforms, revenue performance continues to lag. In the first half of the 2025-26 financial year, KRA collected Sh1.161 trillion, falling short of its Sh1.314 trillion target and leaving a Sh152.2 billion gap.

Business groups say the imbalance is putting pressure on compliant taxpayers. Manufacturers in particular report rising costs due to tighter enforcement, audits and multiple tax adjustments across corporate income tax, VAT, excise duty and payroll deductions.

Kenya Association of Manufacturers tax policy manager Christine Majani warned that the trend is hurting competitiveness, with some firms relocating to neighbouring countries such as Tanzania and Uganda.

“There are fewer employment opportunities when businesses exit, which undermines the objective of the tax policy,” she said.

Stakeholders also pointed to governance concerns, arguing that corruption and weak accountability reduce willingness to pay taxes. Wachuka said improving transparency and tackling procurement irregularities is critical to building public trust.

While KRA has introduced digital tools such as eTIMS to improve compliance and widen the tax net, experts say technology alone is not enough. They called for simpler tax processes, clearer rules for emerging sectors, and stronger taxpayer education.

Meanwhile, business groups have cautioned that further tax increases could dampen investment and job creation, urging the government to focus on broadening the base rather than intensifying pressure on already compliant taxpayers.

KAM says formal sector businesses have been hit by stagnation in revenue performance and continued pressure through tighter enforcement, more audits, and further adjustments to corporate taxes, VAT, excise duty and payroll deductions.

“We know in the past few years a lot of companies, manufacturers who have closed shop in Kenya and are going to Tanzania and Uganda. This is reducing the competitiveness of manufacturers and taxpayers in Kenya, and it just means the economy will not grow. There are no employment opportunities and therefore, this negates the purpose of the national tax policy,” said Majani.