The Kenya Revenue Authority (KRA) has admitted that a key internal compliance tool aimed at curbing fraud has been abused and ordered the removal of affected taxpayers from its watch list.
This is expected to bring relief for thousands of businesses that had suffered serious commercial consequences after being placed on the taxman’s “Special Table”, an administrative procedure that restricts the filing of tax returns for non-compliance with for value-added tax (VAT) obligations.
Businesses flagged under the system are effectively locked out of filing VAT returns through the iTax portal, making compliant companies reluctant to trade with them because they cannot claim input VAT or offset VAT paid on purchases against output tax.
In an internal memo on Tuesday, KRA directed staff to remove taxpayers placed on the Special Table for reasons other than tax fraud or involvement in missing trader schemes.
The directive signals a significant shift in enforcement after the tax agency acknowledged that the tool had evolved beyond its original purpose and was being relied on excessively to enforce compliance.
The Special Table, or the watch list, was originally intended to seal revenue leaks through the notorious 'Missing Trader Scheme', which shrewd traders have exploited to issue fictitious invoices depicting a business transaction where, in fact, no goods and services were supplied.
“Special table was introduced in compliance programme as a deterrence tool for tax evaders and persons involved in tax fraud and crime,” reads the memo, signed by acting deputy commissioner for East and South of Nairobi Tax Service Office Michael M. Kasingiu.
However, the authority conceded that the mechanism gradually became the primary enforcement tool, resulting in unintended consequences.
“This has led to abuse of the tool and punishing of genuine business people and taxpayers instead of facilitating them to do business and subsequently pay their fair share of taxes,” the memo adds.
Under the directive, compliance officers have been instructed to remove taxpayers from the Special Table if they were listed for reasons unrelated to missing trader schemes or tax crime. Relationship managers are expected to notify affected businesses and guide them on compliance requirements going forward.
The exercise is expected to be completed by Thursday, pointing to an urgent effort by the tax agency to correct the situation.
A KRA official familiar with the decision but not authorised to speak to the media said the move followed extensive feedback from businesses during public engagement forums held across the country.
“This is as a result of feedback from public forums we have been holding across the country, led by the commissioner for Micro and Small Taxpayers himself,” the official said, referring to George Obell.
“While the Special Table was meant to target missing traders, we have realised it has led to unintended suffering by many businesses who may have been dealing with fraudulent companies unknowingly,” the official said.
According to the official, business groups — including members of the Institute of Certified Public Accountants of Kenya (ICPAK) — had raised concerns that the mechanism was affecting legitimate traders caught up in supply chains involving non-compliant firms.
The official added that the removal will not be automatic for all taxpayers currently flagged.
“The removal is not blanket. It is on a case-by-case basis. For the cases where businesses were evading and have come and paid their dues, they will be removed from the table,” the official said.
The development comes months after a major ruling by the Tax Appeals Tribunal that gave KRA discretion to place taxpayers under the Special Table mechanism.
In a decision delivered on December 5, 2025, the tribunal rejected an application by event planner Milele Tents seeking to block KRA from placing it under the administrative monitoring system.
The tribunal ruled that it lacked jurisdiction to issue anticipatory orders stopping the tax authority from taking administrative action that had not yet been taken.
“The Tribunal is of the view that the VAT Special Table is a monitoring mechanism that flags VAT-registered taxpayers who demonstrate specific patterns of non-compliance,” the five-member bench said in its decision.
“Once flagged, these taxpayers are restricted from filing VAT returns through the iTax portal until the identified issues are resolved.”
The tribunal added that its mandate is limited to reviewing tax decisions that have already been made and communicated to taxpayers. “It cannot suspend, stay, or restrain possible future administrative actions that have not crystallised into a tax decision capable of appeal,” the tribunal ruled.
The decision means KRA retains broad powers to place businesses it suspects of VAT irregularities on the Special Table, a move that can disrupt cash flows and potentially cripple small traders.
