The Parliamentary Budget Office (PBO) has urged the Treasury to review its tax and expenditure plans, citing ambitious tax projections as the reason for the persistent shortfall in government revenue.
The PBO has noted that overtaxing Kenyans encourages evasion and avoidance, thereby undermining revenue targets.
In its Budget Watch report for the 2025–26 financial year, which was presented to Parliament, the PBO revealed that the government had missed its revenue targets by Sh342 billion over the past two financial years, primarily due to overly ambitious tax measures.
This exceeds the amount that the National Treasury had projected the Kenya Revenue Authority (KRA) would collect through new tax laws during the 2024–25 period.
To remedy the situation, the budget office — a technical body that advises Parliament and its committees on fiscal matters — wants the taxation strategy reconsidered to balance revenue generation with investment incentives.
“In recent years, the government has embarked on an ambitious strategy to expand the tax base and strengthen revenue collection through annual tax amendment laws. However, poor revenue collection and widespread public dissatisfaction have resulted from the introduction of new tax proposals,” the PBO report states.
In addition to public dissatisfaction, the PBO attributes lower revenue to inefficiencies in tax administration, poor implementation of new policies, weak enforcement, and widespread compliance issues.
Revenue shortfalls and public unrest peaked in the 2023/24 and 2024/25 fiscal years following the introduction of new tax proposals.
For instance, the Finance Act 2023 aimed to collect Sh211 billion through amendments to various tax measures. But the target was missed by Sh205 billion.
Similarly, the Finance Bill 2024 projected Sh346 billion in additional revenue, but widespread public protests—including the storming of Parliament on June 25—derailed the plan.
To respond, the government introduced the Tax Laws (Amendment) Act 2024, targeting Sh79 billion,Despite this, the revenue target was missed by Sh137 billion forcing the government to increase both local and foreign borrowing.
despite this, the revenue target was missed by Sh137 billion forcing the government to increase both local and foreign borrowing to meet expenditure obligations.
In the 2025/26 financial year, the government has reconsidered its taxation approach, projecting Sh30 billion in additional revenue while aiming for a total of Sh3.3 trillion.
“The Finance Act 2025 marked a strategic shift from previous tax amendments. Instead of imposing new tax burdens, it focused on strengthening revenue collection through administrative reforms and improved taxpayer compliance,” the PBO notes.
To achieve the Sh3.3 trillion target, the budget office says the government must enhance tax administration through robust enforcement, integration of advanced data analytics and adoption of technology to improve compliance and operational efficiency.
Key reforms identified by the PBO include full digital transformation of revenue administration,upgrades to ICT infrastructure, streamlined tax procedures, improved data governance and renhanced service delivery standards.
“These measures will create a more transparent, responsive, and efficient tax ecosystem that aligns with the evolving needs of Kenya’s economy,” the report states.
Curbing tax evasion remains a top priority. This will require enhanced audit capabilities, collaboration with other government agencies to ensure accurate taxpayer profiling, and widespread deployment of digital tools such as the Electronic Tax Invoice Management System (eTIMS) to foster real-time compliance and secure consistent revenue flows.
