Kenyan taxpayers risk losing up to Sh2.3 trillion in contentious and uncollected taxes, with the figure having more than doubled in the financial year ended last June compared to the Sh999.6 billion recorded at the close of the previous year.
In a new report that details the Kenya Revenue Authority’s (KRA’s) exposure to revenue shortages, Auditor-General Nancy Gathungu indicates that the amounts include Sh2.1 trillion in arrears referred by the taxman as either being under validation, uncollectable, or under reconciliation.
“The statement of arrears of revenue reflects arrears of tax receipts of Sh2.3 trillion (up from Sh999.6 billion in 2023). This balance includes arrears totaling Sh2.1 referred as either being under validation, uncollectable, under reconciliation, under resolution or awaiting updating for taxpayers’ ledgers,” reads the report in part.
“In the circumstances, the completeness, accuracy, and recoverability of the tax revenue arrears of Sh2.3 trillion could not be confirmed.”
The audit report flags migrated legacy system debts amounting to Sh765.3 billion, custom uncollectable debts totaling Sh906 million as well as public sector debts summing up to Sh231.6 billion.
Debt under tax appeal processes stood at Sh391.8 billion as of the close of June last year as those under validation process clocked Sh138.6 billion.
By adopting a balanced approach to taxation, we can ensure that our economy remains competitive.
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At the end of the period, debts whose disputes had been resolved but were yet to be updated in taxpayers’ ledgers were valued at Sh588.5 billion.
The trillions in unrealised taxes come at a time KRA has increasingly come under pressure for missing tax revenue targets, even as individuals and firms decry over taxation that has hit domestic spending power and business profits.
The trend is also reflective of a growing number of litigation cases as individuals and businesses challenge KRA’s interpretation of tax laws while others dispute the demands on grounds that they are erroneous.
Faced with increased litigation from aggrieved taxpayers, the tax body has over the years turned to arbitration to end wrangles with aggrieved taxpayers.
The Authority has also turned to amnesty in a bid to woo taxpayers who have altogether opted not to settle their dues, leading to the accumulation of penalties running into billions of shillings.
KRA has struggled with collections prompting a review of performance targets. For example, since July 2024, the National Treasury has cut tax targets for the fiscal year ending June by Sh516 billion. The government originally planned to collect Sh2.917 trillion in taxes when it unveiled the 2024/25 budget in June 2024, but has since reconsidered the ambitious target and lowered it by Sh516 billion. This cut represents 17.7 percent of the original collection target.
