KRA proposes mandatory VAT registration for all businesses
By Mustafa Juma, March 25, 2026The Kenya Revenue Authority (KRA) has proposed a sweeping tax reform that would make it mandatory for all businesses, regardless of size, to register as Value Added Tax (VAT) agents.
The move, if adopted, would eliminate the current Ksh5 million annual turnover threshold for VAT registration, effectively bringing small traders under the tax net for the first time.
Under the proposal, every business, from retail shops and service providers to consultants, will be required to charge 16 per cent VAT on goods and services not exempted from the tax.
The collections must then be remitted monthly to KRA.
This means small-scale traders who previously operated below the VAT threshold, including outlets selling mobile phones, soft drinks, bottled water, snacks, cooking gas, cosmetics, and petroleum products, will now have to factor VAT into their pricing.
Price hikes
As a result, this could translate into a noticeable rise in the cost of everyday goods and services.
Small traders and micro-businesses will need to adjust their pricing structures to accommodate the 16 per cent VAT.
Consultancy services and other professional service providers will also be impacted.
All fees charged for services will now attract 16 per cent VAT, meaning clients may face higher bills.
KRA defends move
KRA justifies the proposal as part of an effort to close an estimated 38 per cent VAT collections gap, which currently leaves the government with Ksh653 billion in VAT revenue, far short of the expected potential.
The authority argues that eliminating the threshold could boost collections to more than Ksh1 trillion, strengthening the country’s revenue base.
KRA Commissioner for Micro and Small Taxpayers, George Obell, in an interview with a local daily, defended the proposal. He dismissed the fears that it could stifle small enterprises.
“This proposal is not going to hurt businesses in any way. Businesses only remit VAT paid by consumers. The move will ease the burden on a few VAT-registered businesses and generate more domestic revenue for the country,” he said.
The KRA is expected to submit the proposal for parliamentary review, after which it may be adopted into law, fundamentally altering Kenya’s VAT landscape.
KRA reforms
The move comes weeks after the government unveiled sweeping proposals to reform KRA following growing concerns over tax pilferage, integrity gaps, and weak service delivery.
Lawmakers say the reforms are aimed at sealing revenue leaks, reducing human interference in tax processes, and restoring public trust in the tax agency.
Speaking on Tuesday, March 3, 2026, during an interview on a local TV station, Alego Usonga, Member of Parliament (MP), Sam Atandi, who also chairs the National Assembly Budget and Appropriations Committee, said automation will be central to the reforms.
“One of the areas we have identified is that KRA is not fully automated. There is still too much human intervention in the process of tax collection,” Atandi said.