Some 175,760 companies dropped off the compliance radar of the Kenya Revenue Authority (KRA) in the year to June 2025, reflecting tax cheating and opportunistic business registration for one-off ventures such as government supply contracts.
Data obtained from the KRA shows 442,441 of 618,201 firms in the taxman’s register filed annual corporate income tax (CIT) returns, leaving more than a quarter (28.43 percent) of firms in the tax net as non-filers.
The number represents a jump from the 143,503 non-filers out of 556,329 a year earlier, partly pointing to a growing pool of dormant or inactive firms.
It also indicates the growing pool of firms that are declaring profits and not paying taxes, upending the State revenue growth strategy.
In place of hiking corporate and individual taxes that triggered deadly protests last year, the State is looking to widen the tax base and improve compliance via weeding out tax evaders.
All firms registered in Kenya are legally bound to file tax returns.
Analysts say the KRA data lays bare how business registration in Kenya is largely driven by short-term goals rather than sustainable commercial ventures.
The increase in non-filers suggests thousands of firms are set up for specific purposes such as government supply tenders and then abandoned once contracts dry up.
This came in a year the Business Registration Service (BRS) approved 138,000 new companies in 2025, a marginal 1.3 percent increase from 136,209 the previous year.
The BRS further reported that 2,260 firms applied to wind up in the year, up from 1,817 in the year to June 2024.
“A significant portion of the non-filing firms may be dormant, non-trading, or inactive. These are businesses that were registered but ceased operations without formally deregistering or notifying KRA,” Stephen Waweru, senior manager for tax services at KPMG, said.
“Kenya lacks a robust mechanism for automated deregistration or periodic validation of active taxpayers, which allows inactive firms to linger on the register.”
Tax experts reckon that the growing number of firms failing to submit annual income declarations to the KRA partly reflect a pattern of entrepreneurship in Kenya that is more transactional rather than growth-oriented.
Some companies in the country, therefore, are registered as “tender vehicles”—entities created to meet procurement requirements for government or parastatal contracts, and usually abandoned once the tenders expire.
This means a portion of firms remain active only for the duration of the supply contract where they accumulate wealth but fail to evolve into sustainable businesses and thus disappear from the tax filing pool.
Such entities usually shut down quietly or are retained as shell companies.
Robert Maina, associate director at EY Kenya, said owners of some of businesses that are retained as dormant entities are ignorant of the fact that even inactive companies are required to file annual tax returns.
“The numbers point to some level of non-compliance, which could be partially attributable to the fact that a sizeable number of companies are incorporated in Kenya for short term or one-off business purposes,” Mr Maina said.
“We also have a category of taxpayers who register them and they retain them as dormant entities and may not be aware that even during dormancy they need to file annual tax returns.”
However, not all non-filers are dormant. Some of them are active, but deliberately avoid filing returns in a bid to escape scrutiny from the KRA, particularly if they declare losses or nil income.
Mr Waweru said that some, especially start-ups, are also weighed down by the costs of compliance. Hiring accountants, maintaining records, and conducting audits could be a heavy burden for small traders operating on thin margins, he said.
“Some registered companies may still be in set-up phase, perhaps having no revenue, not yet trading, or not yet generating enough to warrant or engage in full accounting or tax activities. Such firms may defer filing until they start operations,” Mr Waweru said.
Alex Mwangi, the acting commissioner for Business Strategy, Technology & Enterprise Modernisation, said the taxman was increasingly investing in data analytics to detect non-compliance among taxpayers.
He stressed that the iTax system cross-references information from different databases such as BRS and e-Citizen to spot inconsistencies in returns, while the Electronic Tax Invoice Management System (eTIMS) provides real-time visibility of business transactions for VAT purposes.
By creating risk profiles based on anomalies and transaction patterns, Mr Mwangi told the Business Daily, the authority can focus its enforcement on non-compliant taxpayers rather than blanket audits that often disrupt honest businesses.
“KRA leverages data analytics to identify trends, patterns, and anomalies that signal potential non-compliance,” he said.
The compliance gap, however, exposes weaknesses in Kenya’s regulatory oversight, with little coordination between the KRA, BRS and public procurement platforms.
Analysts say there is currently no direct link between the completion of a government contract and proof of tax compliance, allowing firms to vanish from operational radar but still remain active on the taxpayer’s register.
“The non-compliance of 175,760 firms from the filing pool does lend weight to the argument that Kenya’s business registration system is being used opportunistically. While not all non-filers are tax evaders, the pattern suggests a need for tighter controls, better inter-agency coordination, and smarter enforcement strategies to ensure that registration translates into meaningful compliance,” Mr Waweru said.
