The Treasury has attributed a Sh90 billion tax shortfall for the three months to September to the Finance Act, which avoided new taxes on fears of youth-led protests.
Tax receipts for the first three months of the fiscal year, up to September, stood at Sh573.5 billion against a target of Sh663.5 billion.
The fear of protests forced the abandonment of aggressive tax hikes amid the pressure to raise additional revenues from tax cheats.
More than 50 people were killed when the youth-led marches, popular as Gen Z protests, broke out last June, forcing President William Ruto to abandon tax hikes worth Sh346 billion.
The Treasury says the soft Finance Bill has slowed revenue growth, forcing the State to borrow more and plug the budget deficit currently estimated at Sh901 billion.
‘Tax receipts have not grown as much as we wanted,’ said Treasury Principal Secretary Chris Kiptoo.
‘This reflects slower-than-projected tax receipts, largely due to compliance gaps, administration challenges and the impact of revenue-reducing measures introduced by the National Assembly in the Finance Act, 2025.’
Treasury Cabinet Secretary John Mbadi avoided pushing for aggressive tax measures nearly six months ago as he looked to avoid a fallout faced by his predecessor, Njuguna Ndung’u, who saw the Finance Bill 2024 withdrawn after weeks-long deadly street protests.
The Finance Act 2025 departed from popular tax-raising measures such as higher excise duty on products such as alcohol, airtime, data, cigarettes, alcohol and confectionery.
The Act was the tamest in years, with the Exchequer expecting it to only raise Sh30 billion in new revenues from Sh344.3 billion from the rejected Finance Act, 2024, representing a 91 percent reduction in expectations from new taxes.
‘Last year’s events were a learning point for us all. Even those who joined the government after that, we had to look for ways of doing things differently,’ Mr Mbadi told the Business Daily in a previous interview.
The current Finance Act departed from popular tax-raising measures such as higher excise duty on products such as alcohol, airtime, data, cigarettes, alcohol and confectionery.
Without the aggressive tax measures, the Kenya Revenue Authority (KRA) is expected to be aggressive with tax cheats flagged after it conducted a series of background checks, lifestyle audits and vetting.
The KRA is leveraging on increased use of data and linkages between its systems with third parties such as banks and mobile money platforms like M-Pesa to spy on taxpayers’ activities, use of Internet-enabled cameras at excisable goods processing plants and full rollout of digital electronic tax registers (ETRs) to grow revenue.
In terms of tax collected as a proportion of annual economic output, Kenya has been underperforming other nations like South Africa, the State House said.
The Exchequer is, however, expected to face difficulties in raising revenues organically as measures such as expanding the tax base and closing tax loopholes fail to show results.
Corporation or company taxes marked the sharpest miss in three months to September at Sh52.9 billion, with collections at Sh116 billion against a target of Sh168.9 billion.
All other major tax heads also missed the mark, with import duty shy by Sh0.8 billion, excise duty by Sh7.9 billion, pay as you earn (Paye) by Sh12.1 billion and value added tax (VAT) by Sh13.3 billion.
The tax revenue miss was, however, partly offset by a Sh6.4 billion beat in ministerial appropriations in aid (A-i-A), which posted a performance of Sh136.1 billion, surpassing the target of Sh129.8 billion.
This saw the missed target on total revenues at a lower Sh83.6 billion, with collections inclusive of A-i-A at Sh709.6 billion against a target of Sh793.2 billion.
The Treasury finds itself in a revenue bind even as Ministries and State departments demand additional resources, including emergency spending on drought mitigation, with counties such as Trans Nzoia and Elgeyo Marakwet having suffered the wrath of the extreme weather event.
‘Other additional expenditure requests have put additional pressure on the already constrained fiscal space, and we expect to cut spending significantly in the upcoming supplementary budget,’ the Treasury said on Tuesday.
‘Unanticipated flooding in several parts of the country has prompted requests for emergency funding to support disaster response. However, these interventions are yet to be fully costed but additional spending pressures that cannot be ignored.’
The Treasury has previously struggled to undertake significant budget cuts, resulting in additional borrowing, especially from the domestic market to plug additional fiscal deficits.
The government will be forced to amend the current fiscal framework through a supplementary budget in the coming months to factor in additional spending and the lower revenue base.
Currently, the Treasury expects the fiscal deficit to come in at Sh901 billion or 4.7 percent of GDP, with taxes at Sh2.75 trillion or 14.5 percent of GDP.
The Sh901 billion fiscal deficit is to be funded from Sh287.4 billion in net foreign financing and Sh613.5 billion in net domestic financing.
Total spending is estimated at Sh4.269 trillion or 22.5 percent of GDP, including Sh484.8 billion transfers to county governments.