Kenya’s Micro, Small, and Medium Enterprises (MSMEs) remain the backbone of the economy, significantly contributing to job creation, innovation, and economic growth. Despite facing numerous challenges, these enterprises continue to drive development, particularly in rural and underserved areas, aligning with Kenya’s vision of becoming a middle-income economy.

According to the Kenya National Bureau of Statistics, MSMEs account for over 80 percent of employment and contribute about 40 percent of Kenya’s GDP. These enterprises span diverse sectors, including agriculture, manufacturing, retail, and services, providing livelihoods for millions of Kenyans.

A key contribution of MSMEs is their role in job creation. With youth unemployment at about 35 percent, MSMEs serve as a vital source of employment and entrepreneurship opportunities. In rural areas, small-scale farmers and artisans depend on these enterprises to sustain their livelihoods, reducing poverty and improving living standards.

Additionally, MSMEs are at the forefront of innovation, particularly in technology and creative industries. From mobile-based solutions to eco-friendly products, these businesses leverage innovation to solve local challenges and access new markets. Fintech platforms, for example, have enabled MSMEs to access credit, manage payments, and expand their customer reach more efficiently.

Recognising the importance of MSMEs, the Kenyan government and private sector have launched several initiatives to support their growth. Programmes such as the Youth Enterprise Development Fund, Women Enterprise Fund, and Uwezo Fund provide financial assistance and training to aspiring entrepreneurs.

Additionally, organisations like the Kenya Private Sector Alliance advocate for an enabling business environment through policy support and capacity-building programmes. The African Guarantee Fund, a pan-African financial institution, has also played a critical role in supporting MSMEs by providing credit guarantees that enhance access to finance.

Despite their significance, MSMEs’ tax contribution has remained disproportionately low due to informality, compliance challenges, and limited awareness. However, a major milestone has been achieved: the Kenya Revenue Authority (KRA) has established the Micro and Small Taxpayers Department. This is a significant victory for MSMEs and the informal sector, marking a step toward inclusive economic growth and a more enabling business environment in Kenya.

The creation of a dedicated department signals KRA’s positive reception of the sector’s long-standing calls for tailored tax support. It is expected that this department will introduce simplified tax processes and realistic frameworks to enhance tax revenue mobilisation while ensuring MSMEs receive the necessary support for compliance.

Beyond a simplified taxation regime, KRA must deepen its collaboration with the sector and key stakeholders to build trust, transparency, and tax morale. This includes initiatives to educate MSMEs on tax compliance benefits, formalisation incentives, and digital tax solutions to ease filing and payment processes. Additionally, the tax policy framework must be reconsidered to introduce further simplifications tailored to the realities of MSMEs.

The MSME sector remains committed to playing a pivotal role in Kenya’s economic development and contributing its fair share of tax revenues. For this to be fully realised, tax administration must be facilitative rather than punitive, encouraging more startups, boosting innovation, and strengthening entrepreneurship. By fostering a tax environment that supports growth, Kenya can harness the full potential of MSMEs to drive sustainable economic progress.

The writer is the CEO of the Jua Kali Federation of Kenya and Chairman of the COMESA Business Council SMEs Work-Group