Big ask for KRA as Treasury sets Sh3tr revenue target

The Kenya Revenue Authority (KRA) is expected to face significant pressure to meet the Sh2.9 trillion revenue collection target set by the National Treasury for the 2026-27 financial year. 

The Treasury in the draft Budget Policy Statement (BPS) states that it expects total revenue, which includes ordinary revenue collected by KRA through taxes as well as levies imposed by ministries, to reach Sh3.487 trillion in the upcoming financial year.

The ministry has set the target for ordinary revenue at Sh2.9 trillion and Ministerial Appropriations in Aid (AIA) at Sh585.1 billion. 

This will partly finance the government’s ambitious Sh4.64 trillion budget, with a balance of about Sh1.1 trillion expected to be financed through loans, largely from local lenders. 

Despite a record collection of Sh2.57 trillion and surpassing a target of Sh2.55 trillion in the 2024-25 financial year, KRA began the 2025-26 cycle with a sobering Sh107 billion shortfall in its first four months of the financial year, signalling a widening gap between the government’s aggressive fiscal appetite and the actual economic resilience among Kenyans. 

It is yet to be seen whether, after the faltering start, the taxman will catch up and beat this year’s revenue collection target of Sh2.75 trillion while eyeing an even higher target of Sh2.9 trillion in the 2026-27 financial year. 

Treasury says it will implement new tax administrative and policy measures to help KRA meet revenue collection targets despite having to contend with a taxpayer base already reeling from stagnant real wages and a shrinking informal economy.

A target of Sh2.902 trillion would mean that KRA will need to collect Sh7.95 billion daily, including Sundays and public holidays. 

“Total revenues, inclusive of Appropriation-in-Aid, are forecast at Sh3.487 trillion (16.7 per cent of GDP) in FY 2026-27, up from the projected Sh3.321 trillion (17.5 per cent of GDP) in FY 2025-26. Within this, ordinary revenue is expected to reach Sh2.901 trillion (13.9 per cent of GDP), compared to the projected Sh2.754 trillion (14.5 per cent of GDP) in FY 2025-26,” said Treasury in the BPS, which details the government’s spending plans, revenue mobilisation and debt management for the coming financial year and the medium term. 

“Revenue performance will be supported by ongoing reforms in tax policy and revenue administration aimed at broadening the tax base and enhancing compliance.”

This is even as it noted that over the current financial year, KRA has started on a slow note, failing to hit revenue targets for the first four months of the year to October 2025. 

“By the end of October 2025, total revenue collected, including A-I-A, amounted to Sh942.0 billion against a target of Sh1.049 trillion,” said Treasury in the BPS, noting that the underperformance was on account of lower ordinary revenue collections, which were below target by Sh107.7 billion. 

Ministerial A-I-A was, however, above target by Sh169.2 million.

“The ordinary revenue collection was Sh766.8 billion against a target of Sh874.5 billion. All ordinary revenue categories recorded below-target performance during the period under review. The ministerial A-I-A collected amounted to Sh175.2 billion against a target of Sh175.0 billion, Sh169.2 million above the target.”

While it hit the revenue collection target over the last financial year, KRA has, over the years, failed to meet these targets due to a mix of factors that include shrinking real wages, which have had the effect of slowing growth in income tax but also eroded purchasing power among many and in turn affected taxes Such as value-added tax.

The government has also been unable to bring many Kenyans operating in the informal economy into the tax net. 

The need to grow tax revenues to match the government’s spending has resulted in the growing reliance on debt to bridge the gap.

Thus, despite the government’s fiscal consolidation promise, the budget deficit has been growing and is now projected to widen to 5.3 per cent of GDP in the 2026/27 financial year, up from the 4.7 per cent projected for the current financial year. 

The government has a target of a 2.9 per cent deficit in the year to June 2030.

Treasury says it will implement a mix of tax administrative and tax policy measures in order to boost revenue collection over the next financial year.

These include the “continued implementation of the National Tax Policy and the Medium-Term Revenue Strategy to progressively strengthen tax revenue mobilisation by simplifying and harmonising tax laws, rationalising and targeting tax expenditures, and creating a simple, predictable and fair tax system.” 

It also seeks to deepen tax administration through investment in technology to modernise the tax framework as well as scale up non-tax revenues by enhancing the capacity of ministries, departments and agencies, which bring in the Ministerial Appropriations in Aid. 

“These reforms aim to enhance compliance, reduce administrative complexity, support investment, and move revenue collection toward 20 per cent of GDP in the medium term,” says Treasury in the BPS.