Revenue gap widens to Sh161.9bn by March 2026 as key taxes underperform

Kenya’s tax collection performance has taken another hit, with the revenue gap stretching further to Sh161.9 billion by March 2026 as several key tax streams continue to fall below expectations, according to fresh Treasury figures.

Data released by the National Treasury shows that ordinary revenue collected over the first nine months of the 2025/2026 financial year reached Sh1.81 trillion against a target of Sh1.98 trillion. This left a widening deficit that has now grown from Sh110.6 billion reported at the end of December 2025.

The weaker performance comes at a time when the government is under growing pressure to ease tax burdens, especially on salaries through pay-as-you-earn (PAYE), in response to rising living costs affecting households across the country.

At the same time, recent tax relief measures introduced to soften the impact of global tensions, including reductions in value-added tax (VAT) on petroleum products following the US-Israel war on Iran, have also contributed to lower-than-expected revenue intake.

The Treasury has cautioned that introducing more tax cuts without adjusting overall revenue expectations could further strain collections by the Kenya Revenue Authority (KRA), which is already struggling to meet set targets.

“Ordinary revenue collection was Sh1.81 trillion against a target of Sh1.98 trillion by the end of March 2026,” the National Treasury said in its quarterly economic and budget review.

“All ordinary revenue categories recorded below target performance during the period under review, except import duty, which surpassed its target by Sh8.6 billion, and other revenue categories, which surpassed their target by Sh4.1 billion.”

Corporation tax recorded the biggest gap among major tax heads, missing its target by Sh60.3 billion. PAYE followed with a shortfall of Sh50.1 billion, while VAT underperformed by Sh42.8 billion. Excise duty missed by Sh19.2 billion, and investment revenue by Sh43 million.

The continued underperformance highlights ongoing challenges facing KRA, including a slowing economy and limits in expanding the tax base.

To bridge the deficit, the government has increasingly turned to domestic borrowing, adding pressure to public finances.

Despite the misses, total collections for the period were still higher than the same period last year, when revenue stood at Sh1.58 trillion.