The Treasury has revised downward its tax revenue target for the 2026/27 fiscal year, setting a new goal of Sh2.777 trillion, a reduction of Sh81.4 billion from the earlier projection of Sh2.859 trillion. This adjustment reflects slower economic growth and external challenges impacting Kenya's economy.

Key Reductions in Tax Streams

  • Income Tax: Expected collections have been lowered by Sh78.6 billion to Sh1.305 trillion, primarily affecting corporate income tax and Pay As You Earn (PAYE) contributions.
  • Value Added Tax (VAT): Target reduced by Sh18.9 billion to Sh810.3 billion.
  • Excise Duty: Projections cut by Sh17.4 billion to Sh364.8 billion.
  • Other Taxes: Slight decrease from Sh77.4 billion to Sh76.4 billion.
  • Import Duty: The only major tax category with an increased target, raised by Sh34.6 billion to Sh220.8 billion.

Economic Growth Outlook

The Treasury lowered Kenya's economic growth forecast for 2026 to 5.0%, down from 5.3%, attributing the slowdown to the ongoing Middle East conflict and its ripple effects on trade and investment. A modest recovery is expected in 2027, with growth projected at 5.1% as global supply chains stabilize.

Risks to Revenue Collection

Domestic weather shocks such as droughts and floods pose risks to agricultural output, food supply, inflation, and household spending, potentially undermining revenue collection. Additionally, sustained increases in international oil prices and tighter global financial conditions threaten to elevate costs and pressure public finances.

Sector Contributions

The Kenya Revenue Authority (KRA) reported that manufacturing and energy sectors remain the largest taxpayers, contributing nearly one-third of total tax revenue. Manufacturing paid Sh462 billion, up 9.2%, while the energy sector contributed Sh445 billion, a 9.1% increase. Other significant contributors include financial and insurance firms (Sh320 billion), ICT (Sh248 billion), and wholesale and retail trade (Sh288 billion).