Kenya Revenue Authority (KRA) is seeking to rev up Value Added Tax (VAT) collection through technology to meet revenue projections.

This is in line with the country’s new focus on sealing tax loopholes in a bid to raise more funds to meet the Sh3.3 trillion revenue projection. However, this revenue source has continued to record restrained growth over the recent months as per the taxman’s data.

Speaking at the African Development Bank’s VAT Digitisation Seminar held in Nairobi, Commissioner for Medium and Small Taxpayers, George Obell, highlighted Kenya’s strides in implementing the electronic Tax Invoice Management System (eTIMS), a game-changing reform that has significantly boosted VAT compliance, reduced fraud, and enhanced revenue performance.

“The VAT system in Kenya is undergoing a revolution. Our goal is for VAT to become the most reliable and highest-yielding tax head. VAT is paid by consumers; businesses are simply agents. When the system is misused, the public and the government both lose,” he said.

eTIMS, according to him, has enabled real-time transaction monitoring and automated enforcement, helping them detect and block fictitious claims and fraudulent invoices.

With these capabilities, the authority has significantly improved the integrity of VAT returns with one of the key innovations being the automatic rejection of deductions not supported by declared transactions effectively sealing common loopholes.  He said that the system is being upgraded to offer solutions that will improve the taxpayer experience.

“The merchants won’t have to go through hoops anymore, they just click and file,” said Obell, referring to the streamlined VAT return process being upgraded. Recognising the diversity of the taxpayer base, the authority has adopted a tiered approach in the sense that while large companies integrate directly with KRA systems, smaller businesses and informal sector players can use simple, mobile-based solutions such as USSD platforms.

 “You can’t have a one-size-fits-all system,” Obell explained. “We are building flexible solutions that are fit for purpose and aligned to business realities across the spectrum.”  He said these reforms, among many others, have seen a 28 per cent increase in VAT revenue, driven by greater taxpayer visibility and a strengthened compliance framework. 

The digitised system has also shed light on structural gaps, informing ongoing policy reviews on VAT thresholds and equity in the tax regime.

With legislative backing, stakeholder inclusion, and adaptable technology, Kenya’s VAT model is gaining continental recognition as a benchmark for digital tax reform.

“Digital tax administration is not just about adopting technology, it is a structural reform. It’s about building a fairer, more transparent, and efficient tax system for all.”  To enhance this initiative, the taxman early this month announced that it was also banking on the VAT special table to streamline collection noting that it has recently recorded a tax loss of Sh4.7 billion as a result of 2 750 taxpayers out of the 10,771 filing nil returns but Claiming VAT returns.

While speaking during a media roundtable at a Nairobi hotel on June 10, Gideon Muhwa, the Deputy Commissioner for Micro and Small taxpayers at KRA also revealed that 120 newly VAT registered taxpayers transmitted Vatable sales worth Sh11.5  billion with VAT of Sh1.8 billion  for the period between July 2024 and April 2025 but also failed to remit the Tax.  

 “We have actually had a challenge when it comes to VAT specifically as a tax head. The collections of VAT have not been performing the way it ought to perform,” he said.    The country’s VAT to the gross domestic product (GDP) Ratio is currently at 16 per cent among the lowest in the continent.  South Africa’s, according to Muhwa, stands at 27 per cent.