KRA intensifies VAT compliance measures to curb tax evasion

Kenya Revenue Authority (KRA) Deputy Commissioner for Micro and Small Taxpayers Dr. Gideon Muhwa speaking during a roundtable on sensitisation on VAT Compliance measures at the Weston Hotel in Nairobi on June 10, 2025/KNA

The Kenya Revenue Authority (KRA) has intensified efforts to boost compliance with Value Added Tax (VAT) regulations as part of its strategy to enhance revenue collection and curb tax fraud.

Speaking during a stakeholder engagement forum in Nairobi, KRA Deputy Commissioner for Micro and Small Taxpayers Dr. Gideon Muhwa, said the Authority is addressing rising cases of tax evasion, especially involving fraudulent traders who issue fake invoices but fail to remit taxes.

“VAT is a consumption tax that should be one of our top revenue sources, yet its performance remains below expectations due to widespread non-compliance and fraud,” said Dr. Muhwa.

He noted that while Kenya’s tax-to-GDP ratio stands at around 16 per cent, countries such as South Africa report a ratio of 27 per cent, highlighting the need to close the gap by improving tax administration and voluntary compliance.

“To improve accuracy and transparency in VAT reporting, KRA introduced the VAT auto-population system in December 2024. The system leverages data from the electronic Tax Invoice Management System (eTIMS) to automatically pre-fill VAT returns for registered taxpayers,” he added.

Dr. Muhwa said the system initially yielded promising results, with VAT collections increasing by 17 per cent in December 2024 and 15 per cent in January 2025.

However, he noted that the gains were partly reversed by an 11 per cent decline in March 2025 due to misuse of the system, particularly through false input claims.

KRA investigations revealed that some taxpayers are engaging in schemes involving missing traders’ entities that issue high-value invoices without filing returns or paying taxes. In some instances, these entities are registered using stolen identities and cease operations shortly after registration.

Additionally, data from the Authority showed that 71 taxpayers claimed to have purchased goods worth Sh29.8 billion from either non-filing or newly registered firms.

Additionally, 120 companies issued invoices totaling Sh11.5 billion within their first month of registration but failed to submit VAT returns.

Dr. Muhwa further stressed that some businesses continue to file VAT returns indicating liabilities without making actual payments, a practice known as Payment Returns Without Payment (PWP). Such cases are under active investigation.

“To address the problem, KRA has reactivated the VAT Special Table, a monitoring mechanism used to flag suspicious taxpayer behaviour. So far, over 101,000 micro and small taxpayers have been identified, many of whom have remained inactive for prolonged periods while continuing to issue eTIMS invoices,” said Dr. Muhwa

The Authority has further tightened VAT registration procedures by reducing the number of officers authorized to grant VAT obligations from 625 to 170.

A multi-agency panel now vets applicants through in-person interviews and physical inspections of business premises to verify authenticity.

“We only approve VAT registration for businesses that demonstrate genuine commercial activity and can provide relevant supporting documents,” he stated.

In addition, a dedicated task force has been established to investigate and recommend enforcement action on VAT-related fraud.

Making her remarks, KRA Deputy Commissioner for Human Resource, Ms. Patience Ndutu Njau, reminded the public that every individual or business with a Personal Identification Number (PIN) is required by law to file returns, regardless of their income status.

“It is the duty of every taxpayer to confirm and file their returns. We encourage Kenyans not to wait until the last minute to avoid congestion on the system,” said Ms. Njau.

She emphasized that timely and accurate filing is essential for effective national planning and the provision of public services.

 Dr. Muhwa reiterated that KRA is committed to using technology, enforcement, and stakeholder engagement to promote compliance. He assured taxpayers that the Authority aims to support business growth while upholding fairness and accountability in the tax system.

“KRA is not out to punish compliant taxpayers. Our priority is to encourage voluntary compliance. However, we will not hesitate to act firmly against those who exploit the system to evade their tax obligations,” he said.

KRA is encouraging all taxpayers to regularise their tax affairs and cooperate with the Authority’s compliance efforts to support Kenya’s economic development agenda.