Kenya Revenue Authority’s (KRA) efforts to enforce tax compliance have boosted monthly domestic Value-Added Tax (VAT) collections by up to Sh10 billion, showing early gains from cracking down on hard-to-tax sectors such as small businesses and farmers.
KRA Director-General Humphrey Wattanga said monthly domestic VAT receipts now range between Sh28 billion and Sh30 billion, compared to the Sh20 billion previously collected.
The increase follows the mandatory use of electronic tax invoices through the Electronic Tax Invoices (eTIMS) system for all supply transactions.
“We have seen an impact from a revenue perspective. If you look back two or three years, we were collecting domestic VAT at a rate of about Sh20 billion, and over time, once e-TIMS was made mandatory, we have seen that number rise to between Sh28 billion and Sh30 billion,” he said yesterday during the swearing-in of new KRA board member Risper Olick.
This growth translates to annual domestic VAT collections of roughly Sh96 billion to Sh100 billion. Domestic VAT is applied to goods and services within the country at a standard rate of 16 percent.
“So, it (e-TIMS) has had a significant impact. And we are working on further simplification of the system to make it easier for all sectors to use e-TIMS,” Wattanga added. Introduced in early 2023, e-TIMS is a digital platform that requires businesses to issue electronic invoices for taxable supplies. The system enables KRA to monitor sales in real time, helping curb tax evasion and other malpractices.
The government has extended electronic invoicing beyond VAT-registered businesses to include others, aiming to formalize more economic activities and reduce exemptions that create tax gaps.
Starting January 1, 2024, only expenses supported by e-TIMS-compliant invoices qualify for income tax deductions. This posed challenges for large-scale traders, including petrol stations and supermarkets, prompting innovations like reverse invoicing. Under this approach, the buyer, rather than the supplier, generates the tax invoice for a transaction.
Since its introduction on December 27, 2024, reverse invoicing has captured transactions worth Sh800 million. The law allows businesses with annual turnovers below Sh5 million to issue reverse eTIMS invoices.
In the 2024/25 fiscal year, KRA collected Sh2.9 billion through tax base expansion, targeting businesses previously outside the tax register. With a medium-term goal of raising revenue to 20 percent of GDP, VAT presents a bigger opportunity for collection compared to other taxes such as income tax.
In the first half of the current financial year, Kenya collected Sh1.39 trillion against a target of Sh1.44 trillion, achieving 96.2 percent of the goal. This left a shortfall of Sh55.5 billion while recording growth of 11.6 percent.
