Blow for State planning as revenues fall short again by Sh136b

President William Ruto.  ‎[Kipsang Joseph, Standard]

The Kenya Kwanza administration’s ambitious plan to fund its budget without deeper borrowing has been jolted by a Sh136.1 billion half-year government revenue shortfall, yet again.

The latest development exposes persistent weaknesses in tax collection despite sweeping administrative reforms. 

The National Treasury data presented to Parliament this week shows the Kenya Revenue Authority (KRA) collected Sh1.50 trillion in total revenues by December 2025, missing its six-month target, raising fresh concerns about the state of the economy. 

The decline was broad-based, according to Treasury. Ordinary revenue, predominantly taxes, underperformed by Sh115.3 billion, while appropriations-in-aid, the non-tax revenues collected by ministries, fell short by Sh20.8 billion. 

The gap highlights the growing fiscal strain on President William Ruto’s administration as it grapples with soaring debt repayments, rising public-sector wage bills, and unbudgeted emergency costs, such as flood response. 

While official growth projections remain optimistic at 5.0 per cent for 2025, the revenue numbers reveal a disconnect between economic activity and taxable income.  

Private sector credit growth, though recovering, remained modest at 6.3 per cent by November 2025, suggesting businesses and consumers are still under financial pressure. 

“The underperformance reflects slower-than-projected tax receipts largely due to compliance gaps, administration challenges, and revenue-reducing measures introduced by the National Assembly,” the Treasury acknowledged in its presentation. 

Ordinary revenue, or taxes as a share of GDP, has steadily eroded, dropping from 18.1 per cent in the 2013-14 financial year to a projected 14.4 per cent this fiscal year, a trend blamed on a narrow tax base, compliance issues, and faster growth in low-tax sectors like agriculture. 

The consistent shortfalls, despite the State’s aggressive push to hunt tax cheats and broaden the tax base, have sparked debate among economists that Kenya may be experiencing a Laffer Curve effect, in which excessive tax pressure stifles formal economic activity and ultimately reduces collections. 

Despite KRA’s aggressive digital crackdown, including electronic invoicing (eTIMS), a new minimum tax for multinationals, and plans to deploy drones and AI, revenues continue to lag. 

Tax consultants had earlier warned that overly stringent enforcement risks driving small businesses and traders further into the informal shadow economy, undermining the very revenue goals the government seeks to achieve.