Tax base expansion plays a dual role: improving tax equity by raising revenue while reducing the overall burden. Kenya’s tax policy borrows from the OECD’s minimum rate benchmarks, including Significant Economic Presence rules. The OECD further identifies three pathways that support business sustainability-strong institutions, direct support, and hybrid policy designs.
In Kenya, KRA and the Business Registration Service (BRS) anchor taxation and licensing. The adoption of the UK Companies Act in 2015 marked a major step in deregulation, boosting the formation and visibility of local start-ups across supply chains.
Direct support involves building ecosystems that help businesses move from incubation to industrial stability through financing, training, mentorship and access to market information.
Without timely information, however, incentives can deepen market asymmetry, allowing large firms to dominate. Tax rebates such as Industrial Deduction Allowances, though powerful, tend to benefit large investors with access to high-level advisory services and the capacity to recover tax credits tied to heavy capital expenditure.
Financial institutions remain essential to enterprise growth.
Banks like KCB and Ecobank have intervened in dairy value chains, clean energy for schools and cottage industries, and gender-responsive credit programmes. Yet a closer look at Ecobank’s operations shows stronger investment footprints in West Africa than in Kenya-an indication that local banks must scale up support for home-grown projects.
Comparatively, the BRS Registry holds millions of dormant firms created mainly to access state tenders, only to be derailed by policy inconsistencies.
Botswana offers a contrast, with a successful hybrid model of part-grant, part-loan financing, predictable tax bands and the kgotla culture of public consensus-building. Corruption does not stifle start-ups at infancy.
Kenya, by contrast, frequently alters tax policies. From January 2026, all individual tax-deductible expenses must be validated on iTax-a shift that will increase audit and filing costs for SMEs. Even so, Kenya retains stronger market frontiers than Botswana.
To borrow from Barack Obama, the climb may be steep, but it leads to a better place. KRA must find the right policy mix to turn Kenya’s diversity into a stronger, expanded tax base.