Kenya Cuts Tax Target by KES 81.4 Billion on Weaker Growth Outlook

(NAIROBI, Kenya) – Kenya’s National Treasury has lowered its tax revenue target for the current financial year by KES 81.4 billion ($634 million, £498 million), signalling weaker than expected collections from corporate profits and worker earnings. The Treasury now expects the Kenya Revenue Authority (KRA) to collect KES 2.777 trillion ($21.64 billion, £17.00 billion) in taxes in the 2026/27 financial year, down from the KES 2.859 trillion ($22.28 billion, £17.50 billion) target set earlier in the Budget Policy Statement.

The estimates were adjusted after taking into account the fiscal outcome of the 2025/26 financial year, the Treasury said in its newly published draft 2026 Budget Review and Outlook Paper. The largest downward revision falls on income tax, where expected collections were cut by KES 78.6 billion ($612 million, £481 million), from KES 1.384 trillion ($10.78 billion, £8.47 billion) to KES 1.305 trillion ($10.17 billion, £7.99 billion). Income tax streams, largely corporate income tax on profits and Pay as You Earn on wages and salaries, account for the bulk of the overall revenue downgrade.

The Treasury has already cut Kenya’s 2026 economic growth forecast to 5.0 percent from 5.3 percent, citing the adverse effects of the ongoing Middle East conflict on domestic economic activity. Officials said earlier that growth is expected to recover slightly to 5.1 percent in 2027 as external pressures ease and global supply chains normalise. The weaker growth outlook helps explain the lower tax projections, particularly the reduction in income tax expectations, as the Treasury becomes less optimistic about revenue generation during the current financial year.

Kenya Tax Revenue Target Revisions for 2026/27 Financial Year

Treasury officials warned that domestic weather shocks could undermine economic activity and public finances. “Adverse weather conditions, including droughts, floods and erratic rainfall, could weaken agricultural production, disrupt food supply and increase inflationary pressures, with implications for household purchasing power and economic activity,” the draft 2026 BROP says.

The document also warns that external shocks could further strain revenue collection and state finances. “A sustained increase in international oil prices could raise domestic fuel and transport costs, widen the import bill and place upward pressure on inflation and the current account,” Treasury officials wrote, adding that tighter global financial conditions could raise external financing costs, weaken capital inflows and increase exchange rate pressures.

The Treasury also lowered Value Added Tax projections by KES 18.9 billion ($147 million, £116 million) to KES 810.3 billion ($6.31 billion, £4.96 billion) and excise duty expectations by KES 17.4 billion ($136 million, £107 million) to KES 364.8 billion ($2.84 billion, £2.23 billion). Other tax revenue was trimmed slightly to KES 76.4 billion ($595 million, £468 million) from KES 77.4 billion ($603 million, £474 million), extending the downward revision across major domestic tax categories. Import duty was the only major tax source revised upward, with the Treasury increasing expected collections by KES 34.6 billion ($270 million, £212 million) to KES 220.8 billion ($1.72 billion, £1.35 billion).

The revision follows a KRA report in July that manufacturing and energy cemented their position as Kenya’s biggest taxpayers during the year ended June 2026. KRA said manufacturing, energy, financial and insurance, ICT, and wholesale and retail trade generated about 62 percent of total tax revenue despite accounting for only 27.4 percent of nominal GDP. The figures underline the government’s dependence on a handful of sectors to finance the Exchequer and suggest that any slowdown in their profitability, investment or employment could significantly affect income tax collections.

Manufacturing remained the largest contributor after paying KES 462 billion ($3.60 billion, £2.83 billion), up 9.2 percent from KES 423 billion ($3.30 billion, £2.59 billion). Energy generated KES 445 billion ($3.47 billion, £2.72 billion) after growing 9.1 percent. Together, the two sectors contributed nearly one third of all taxes and levies collected by KRA in the year ended June 2026. “Its contribution is linked to value addition, jobs, supply chains and importation of raw materials, which accounted for 49.0 percent of overall import value,” KRA said of manufacturing. The energy sector’s performance reflected the strong relationship between oil imports, trade activity and revenue collected at the border.

Financial and insurance firms contributed KES 320 billion ($2.49 billion, £1.96 billion), with corporation tax accounting for 34.8 percent of sector collections, while withholding income tax and PAYE jointly contributed 47.1 percent. ICT generated KES 248 billion ($1.93 billion, £1.52 billion), up from KES 230 billion ($1.79 billion, £1.41 billion), supported by excise duty on airtime and financial services, corporation tax, domestic VAT and PAYE. Wholesale and retail trade contributed KES 288 billion ($2.24 billion, £1.76 billion) after expanding 10.3 percent, reflecting stronger trade, distribution, consumption and business transactions across the economy.