The Kenya Revenue Authority (KRA) collections from tax defaulters in the year to June 30, 2026, were nearly 16 times higher than inflows from newly recruited taxpayers, indicating a struggle to widen the tax base.
Records show that KRA's debt recovery yielded Sh144.82 billion in the 2025/26 financial year compared with Sh9.1 billion generated from newly onboarded taxpayers, signalling the gains of enforcement campaigns on already existing groups.
Tax receipts from tax-base expansion (TBE) programmes such as onboarding previously untaxed individuals and businesses, reactivating nil and non-filers using third-party data, and assigning tax obligations that better reflect ‘actual incomes’ of taxpayers dropped 68.07 percent from Sh28.5 billion in the year ended June 2025.
Collections from follow-ups on outstanding obligations and instalment payment plans with taxpayers, on the other hand, climbed to a record Sh144.82 billion, from Sh141.26 billion in 2024/25, Sh103.39 billion in 2023/24 and Sh99.27 billion in 2022/23.
The steep drop in TBE programmes highlights slowing returns from efforts to widen the tax register.
“Some of the initiatives under TBE include recruitment of landlords through the (Block Management System - BMS), conversion of nil and non-filers through the use of third-party data, recruitment of additional taxpayers and provision of additional tax obligations based on their income among others,” Commissioner-General Adan Mohamed said.
He attributed the steady growth in debt recoveries to intensified follow-up on unpaid assessments and structured repayment arrangements negotiated with taxpayers.
This came in a year the KRA intensified efforts to identify individuals and businesses actively trading but remaining outside the tax system, by either failing to file returns or declaring minimal income despite recording ‘significant’ sales and purchases.
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.
"A transaction is not completed by one party; it has two parties," Customs and Border Control commissioner Lilian Nyawanda, who acted as Commissioner-General between April 8 and May 18, said in an interview in April.
"One party may file, another one may not. So there's a way we are able to track from our own system," she said, explaining how KRA links buyers and sellers through its databases to identify potential non-compliant taxpayers.
The authority has been sending targeted communications to such traders, notifying them that their transactions have been detected and urging them to regularise their tax affairs before tougher enforcement measures are taken.
The compliance drive comes as tighter tax rules make it increasingly difficult for businesses operating outside formal systems to claim tax deductions and remain under the radar.
Businesses seeking to deduct expenses for income tax purposes are required to present valid electronic tax invoices, meaning firms buying goods or services from non-compliant suppliers risk losing legitimate deductions despite genuine commercial transactions.
Small businesses are also required to use the Electronic Tax Invoice Management System (eTIMS) to obtain compliant invoices from suppliers, allowing them to deduct the cost of stock and other allowable expenses.
Where goods are purchased from suppliers with annual turnover below Sh5 million—who are not required to issue eTIMS invoices—the responsibility shifts to the buyer, who must generate a Buyer-Initiated Invoice through KRA's eCitizen platform.
The additional administrative step is expected to improve documentation across informal supply chains, where transactions have traditionally left limited audit trails.
Businesses with annual turnover of Sh5 million or more are required to register for Value Added Tax (VAT) and charge the standard 16 percent rate, while those with annual sales of between Sh1 million and Sh25 million pay a 1.5 percent turnover tax on gross sales.
KRA says turnover tax, being a final tax, simplifies compliance by taxing sales rather than profits, which are generally more difficult to verify among small businesses.
The growing reliance on debt recovery, coupled with expanding use of third-party data, digital invoicing and transaction matching, signals that KRA's revenue strategy is increasingly depending on ensuring existing taxpayers accurately declare, file and pay the taxes they owe. The KRA is, at the same time, continuing efforts to bring businesses and individuals that remain outside the tax system into the formal tax net.
