KRA blames PAYE, VAT and oil tax changes for Sh132bn revenue shortfall

Nairobi, Kenya - The Kenya Revenue Authority (KRA) has cited changes to customs oil taxes, Pay As You Earn (PAYE) and Value Added Tax (VAT) concessions as the reasons behind a Sh132.1 billion revenue shortfall in the 2025/2026 fiscal year. KRA reported to the National Assembly’s Finance and National Planning Committee that it gathered Sh2.844 trillion, which is 95.6% of its goal, despite falling short of the target.

Despite the shortfall, revenue collections grew by 10.6% compared to the prior year. Domestic taxes contributed substantially to the gap, with KRA gathering Sh1.851 trillion against a target of Sh1.991 trillion. PAYE collections were Sh598.8 billion, short by Sh53.6 billion, while domestic VAT was Sh355.3 billion, falling short by Sh27.9 billion.

Disruptions in oil cargo logistics due to Middle East conflicts were also a factor in oil tax collections. KRA plans to explore biofuels from Japan, India, Malaysia, and Singapore, deploy smart meters, and use smart technology to improve the accuracy of fuel declarations. The authority also aims to recover unpaid tax liabilities through government pending bill payments and target major employers for better PAYE collections.

Additionally, KRA intends to combat VAT fraud, identify potential tax revenue of Sh56.1 billion, and use financial data to spot undeclared income. Committee members praised KRA for its highest revenue collection ever but urged for improved performance next year, urging the authority to boost revenue without placing additional strain on formal employees.

Committee Chair Kuria Kimani praised the authority for its record-breaking collections and anticipated better results next year, avoiding further pressure on the formal workforce.