The Kenya Revenue Authority (KRA) has raised the alarm over a massive structural imbalance in the national tax system, revealing that only 8,139,167 taxpayers are active out of a registered base of 20,205,402.
This means only 40% of registered individuals and entities contribute to the national purse, leaving a significant portion of the population outside the tax net.
This data, presented by the KRA team during an engagement with the Kenya Editors Guild on Thursday, April 9, at the Nairobi Serena, highlights a compliance gap that complicates government fiscal planning and revenue targets.
According to KRA, the tax burden is heavily concentrated among formal sector employees. While the active participation rate for Personal Income Tax (PIT) and Corporate Income Tax (CIT) is a low 12% each, Pay As You Earn (PAYE) maintains a 70% active engagement rate. This disparity exists because PAYE is deducted at source by employers, making it easier to administer and enforce.
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A staggering 97.7% gap exists in Personal Income Tax collection. While KRA currently collects Ksh 12.5 billion in PIT, the estimated potential is over Ksh 500 billion.
This shortfall is driven by four primary compliance failure modes: non-filers who never submit returns, "NIL filers" who declare zero liability despite active operations, under-declaration of income, and unregistered businesses. These factors allow a vast amount of revenue to remain hidden in plain sight or invisible to current enforcement.
Structural shifts in the labor market over the last 35 years have further hindered revenue mobilisation. Data from the Kenya National Bureau of Statistics (KNBS) Economic Survey 2025 show that informal employment now outpaces the formal sector by a factor of 6.
As of 2024, there are over 19 million informal workers compared to just 3 million in the formal sector. Because the majority of the workforce operates outside the traditional tax net, tracking and taxing their income effectively through conventional methods has become nearly impossible.
The data also shows varying participation across other tax heads. Value Added Tax (VAT) has 116,253 active taxpayers out of 245,377 registered (47%), while Monthly Rental Income (MRI) tax has an active rate of 48%, with 105,768 active participants out of 221,179. For smaller businesses, the Turnover Tax (TOT) is set at 1.5% for gross turnovers between one million and Ksh 25 million, yet much of this remains uncollected due to the high volume of unregistered businesses.
To seal these gaps, KRA is implementing a digital transformation strategy centered on predictive analytics and machine learning. The goal is to inter-weave tax processes directly into the digital ecosystems that businesses and individuals already use.
This modernisation is designed to identify tax evasion in the gig economy, e-commerce, online betting, and crypto trading. By shifting to data-driven decision-making, the authority aims to lower operational costs, identify fraud more effectively, and encourage voluntary compliance across the evolving economic landscape.
