The Kenya Revenue Authority (KRA) collected nearly 16 times more from tax defaulters than from newly registered taxpayers in the year ending June 2026.
Debt recovery brought in Sh144.82 billion, while new taxpayers contributed only Sh9.1 billion, according to official records. The gap grew as collections from tax-base expansion programs fell 68.07 percent from the previous year’s Sh28.5 billion.
Enforcement over expansion
KRA has prioritized squeezing existing taxpayers over broadening the tax register. Debt recoveries rose from Sh99.27 billion in 2022/23 to a record high in 2025/26. Meanwhile, efforts to onboard new payers through initiatives like the Block Management System for landlords and reactivating non-filers have stalled.
Commissioner-General Adan Mohamed said the debt recovery success came from “intensified follow-up on unpaid assessments and structured repayment arrangements.” The authority has also increased scrutiny of businesses operating outside the tax system, using third-party data and electronic invoices to spot discrepancies between declared income and actual activity.
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The shift highlights a key challenge: as new taxpayer growth slows, the agency is focusing on enforcement. It now uses transaction matching to link buyers and sellers through its databases. Flagged traders receive notices to regularize their tax affairs or face penalties.
Small businesses face higher stakes. Firms must now present valid electronic tax invoices to claim deductions, a rule that pushes them to use compliant vendors. If a supplier isn’t registered in the Electronic Tax Invoice Management System (eTIMS), the buyer must generate a Buyer-Initiated Invoice through KRA’s eCitizen platform. The step aims to close gaps in informal supply chains where transactions often leave little trace.
Businesses with annual turnover of Sh5 million or more are required to register for VAT and charge the standard 16 percent rate.
Digital dragnets and shifting burdens
KRA’s growing use of digital tools has made it harder for businesses to avoid detection. Customs and Border Control commissioner Lilian Nyawanda, who briefly served as acting Commissioner-General, explained the approach: “A transaction is not completed by one party; it has two parties. One party may file, another one may not. So there’s a way we are able to track from our own system.”
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The authority is increasingly relying on third-party data, electronic invoices and transaction matching to identify businesses whose commercial activity appears inconsistent with their tax declarations.
For small traders, the rules create a challenge. While generating compliant invoices can be difficult, many operate in cash-heavy sectors where suppliers resist formal documentation. The result is pressure: either adapt to the digital system or risk losing access to deductions.
The reliance on debt recovery points to a short-term fix. While chasing defaulters brings immediate revenue, it doesn’t solve the core problem: a tax base growing too slowly to match government spending. Without more new taxpayers, enforcement and evasion will likely continue in a cycle.
KRA’s next task will be balancing enforcement with incentives. The current approach may push away small businesses already struggling with compliance costs. To formalize the economy, the authority may need to make tax registration easier before the pool of defaulters runs out.
