Tourism levy collections fell Sh1 billion short of target in the year to June after regulations to bring Airbnb rentals, homestays and villas into the tax system failed to take effect.
The Tourism Fund collected Sh5.646 billion against a Sh6.65 billion target in the 2025/26 financial year, according to data submitted to the State Department for Tourism.
The Sh1.004 billion shortfall was the largest recorded in recent years and marked a significant deterioration from the previous financial year, 2024/25, when collections missed the Sh5.5 billion target by Sh400 million.
The agency attributed the shortfall to the failure to gazette regulations that would have expanded levy collection to short-term accommodation operators.
‘The Fund had anticipated having regulations that would enable collection of levies from Airbnbs, homestays and villas during the financial year, but the same were not gazetted, hence the shortfall,’ the report says.
The disclosure highlights the growing challenge of capturing Kenya’s expanding short-term rental market under a levy system largely designed around conventional hotels and other licensed tourism establishments.
It also exposes differences over whether new regulations are needed before the levy can be collected from digital platforms.
Tourism Fund chairperson Samson Some said in January that there was no legal obstacle to collecting the charge from digital platforms, arguing that the bigger challenge was identifying and tracking short-term rental operators.
‘There is no legal gap,’ Mr Some said in an interview. ‘The systems we had were built for traditional hotels, restaurants and bars. What has changed is the entry of digital platforms and short-term rentals, which the old systems were not designed to capture.’
Under the tourism law, regulated hotels, restaurants and other licensed tourism establishments pay a 2 percent tourism levy on gross sales.
The levy is payable monthly, with failure to remit by the 10th of the following month attracting a Sh5,000 fine and a three per cent penalty on the outstanding amount for every month it remains unpaid.
Short-term rentals have complicated enforcement, particularly where individual operators manage multiple properties without operating from conventional hotel premises.
‘You may have someone running 10 units on one floor of a residential block while the rest of the building is private housing,’ Mr Some said. ‘Without the right digital system, you may not even identify the operator, let alone enforce levy collection.’
The latest figures show how the revenue gap has emerged as annual targets have increased.
Collections exceeded the target by Sh1.12 billion in 2021/22, when Sh2.81 billion was raised against a Sh1.69 billion target.
The surplus narrowed to Sh690 million in 2022/23, with collections of Sh3.9 billion against a Sh3.21 billion target, before falling to about Sh150 million in 2023/24.
Collections then dropped below target in 2024/25, when Sh5.1 billion was raised against a target of Sh5.5 billion, leaving a Sh400 million gap.
Although collections rose by Sh546 million last year, the annual target increased by Sh1.15 billion, meaning revenue growth was insufficient to match the higher expectations.
The stalled expansion of the levy base comes as the tourism industry increasingly includes accommodation booked outside traditional hotels, raising the stakes for the authorities to find a workable collection mechanism.
Mr Some said the proposed solution is to shift collection towards digital transactions rather than relying on physical identification and follow-up of individual operators.
Under the proposed model, the levy would be deducted when a guest makes a booking, with the platform remitting the amount directly to the agency.
‘If $100 (about Sh12,962) is collected from a guest, a percentage is remitted directly through the system,’ Mr Some said. ‘That way, we don’t have to chase operators to their residences or follow properties that keep shifting locations. The levy is collected at source.’
The approach would move enforcement from individual properties to booking platforms, potentially giving authorities access to transactions that are difficult to identify through conventional inspections.
Other countries have adopted similar approaches. Rwanda requires accommodation providers, including short-term rental operators using platforms such as Airbnb, to pay tourism tax based on guest payments.
South Africa has also pursued a data-driven approach in which platforms can provide authorities with transaction information, including host identities, earnings, property addresses and rental periods.