Taxes on companies’ and workers’ earnings recorded a rare fall in the first quarter of the current financial year ending June 2026, underlining weakening profitability, stagnating formal jobs and freeze on pay raises.
Latest data from the National Treasury shows that income tax receipts dropped 2.31 percent to Sh252.62 billion in three months to September 2025, down from Sh258.60 billion in the same period the year before.
The receipts from income tax streams underperformed the quarterly the Sh317.69 billion target set by the Treasury target by Sh65.07 billion.
The shortfall piles pressure on the Kenya Revenue Authority (KRA) at a time when the government is pursuing aggressive fiscal consolidation.
The data shows the performance was weighed down by what the Treasury calls ‘other income taxes’ which typically captures instalment taxes on business income and corporate tax advances.
This category of income tax fell 5.13 percent in the review period to Sh115.99 billion from Sh122.27 billion in comparable quarter the previous year, pointing to slower profit growth or cash-flow tightness that affects remittance of advance payments by companies.
That was compounded by softer collections from Pay-As-You-Earn (PAYE), which grew a measly 0.21 percent to Sh136.62 billion, signalling a cooling formal labour market and stagnant wage adjustments.
Stephen Waweru, a senior manager for tax services at KPMG, said that drop in corporate income tax (CIT) underlined rising signs of business distress across various sectors.
‘A significant number of firms may be operating at a loss. In such cases, where there is no net profit, the business would not incur a CIT liability,’ Mr Waweru said in October.
In contrast, the Treasury data shows that consumption taxes such as VAT and excise duty continued to hold firm.
Domestic VAT collections jumped 17.42 percent to Sh87.34 billion in the period from Sh74.38 billion a year earlier, buoyed by stronger compliance with electronic Tax Invoice Management System (eTIMS) and improved domestic consumption. VAT on imports also bumped 11.80 percent to Sh86.03 billion, from Sh76.96 billion.
Excise duty similarly grew 8.43 percent to Sh73.88 billion, up from Sh68.13 billion, reflecting receipts from consumption of excisable goods such as beer, spirits, wine, cigarettes, mineral water, juice, cosmetics and soda as well as excisable services like airtime, internet and earnings on loan fees.