The Treasury is betting on weeding out tax cheats and expanding the tax base to generate Sh177 billion in additional revenues for the year starting July.
Budget estimates tabled in the National Assembly indicate that the Kenya Revenue Authority (KRA) will be expected to raise extra Sh177 billion in the new fiscal year to Sh2.757 trillion from the current Sh2.58 trillion in the period to June 30.
The government has refrained from aggressive tax-raising measures in the Finance Bill, 2025 and instead is leaning towards sealing leakages to avoid a repeat of youth-led protests that met last year’s tax hikes.
From the Bill, the Treasury hopes to raise not more than Sh30 billion in extra revenues.
The deadly anti-government protests forced the State to withdraw the Finance Bill 2024 that sought to impose taxes worth Sh345 billion on goods ranging from bread to diapers.
“In terms of additional revenue collection, we are not collecting much. This could be a record year where we don’t collect much from new tax measures,” said Treasury Cabinet Secretary John Mbadi.
“The estimate of additional revenue collections from the Finance Bill is in the region of Sh25 billion to Sh30 billion. The Finance Bill doesn’t always have to adjust tax rates upwards. Looking at the Finance Bill this year, it is more on tax administration and trying to seal the loopholes, make tax collection efficient and remove ambiguities.”
The draft Finance Bill has departed from popular tax-raising measures such as higher excise duty on products such as alcohol, airtime, data, cigarettes, alcohol and confectionery.
The Treasury has instead favoured the reduction of tax exemptions, which has seen a variety of goods moved from VAT zero-rating to exempt status, while some will attract the consumption tax.
Under zero rate, firms are allowed to seek refunds from the KRA for VAT they pay on inputs like electricity, fuel and raw materials.
For exempt, they are not allowed to claim the refunds, which often sees the producers pass on the VAT on inputs to consumers.
The Treasury reckons that producers have abused the refunds model by not transferring the benefits to consumers, arguing they have enriched themselves from the reimbursement
Tax forgone from zero-rating that was due as refunds rose from Sh98.4 billion in 2021 to Sh119.9 billion in 2022 or 1.86 percent of GDP. The Treasury expects to cut the fiscal deficit to 4.5 percent of GDP from the current estimate of 5.1 percent.
The collection of fees and levies by various ministries and State departments, also known as appropriations-in-aid (AIA), is expected to yield Sh559.9 billion in the next fiscal year from Sh486.8 billion currently.
Grants are set to mobilise an additional Sh46.9 billion to plug funding to the Sh4.23 trillion 2025/26 budget, resulting in a deficit of Sh876.1 billion from Sh887.1 billion currently.
The fiscal deficit is expected to be funded through Sh284.2 billion in net foreign financing and Sh591.9 billion in net domestic financing.
The Treasury says it has begun implementing the national tax policy, which is designed to ensure predictability in tax policy over the medium term.
The KRA is expected to be aggressive with tax cheats after it conducted a series of background checks, lifestyle audits and vetting.
Its intelligence unit has in the past said tax evasion schemes used by companies and wealthy individuals largely range from under-stating sales to inflation of expenses, which result in lower profits.
Reduced profit translates to lower corporate taxes, which are based on 30 percent of profits posted by local firms.
Some understate salaries paid to workers to reduce PAYE obligations, while others overstate the value of purchases of raw materials to claim more VAT refunds.
The KRA is leveraging on increased use of data and linkages between its systems with third parties such as banks and mobile money platforms like M-Pesa to track taxpayers’ activities, use of Internet-enabled cameras at excisable goods processing plants and full rollout of digital electronic tax registers (ETRs) to grow revenue.
In terms of tax collected as a proportion of annual economic output, Kenya has been underperforming other nations like South Africa, the State House said.
The KRA’s enforcement unit has been using various databases to pursue suspected tax cheats, including bank statements, import records, motor vehicle registration details, Kenya Power records, water bills and data from the Kenya Civil Aviation Authority (KCCA), which reveals individuals who own assets such as aircraft.
The KRA hinges on the all-powerful Tax Procedures Act 2015 that allows it to access electronic data on taxpayers from third parties without seeking court orders.
