This year marks exactly two decades since Kenya made its foray into the integration of technology in taxation and domestic resource mobilisation.
In 2005, the Kibaki administration, stewarded by then Finance minister David Mwiraria, introduced Electronic Tax Registers (ETRs) embedded with capabilities for the generation of invoices for Value Added Tax registered tax payers. At the time, it was a huge leap!
Ever since, the country has made steps to further gains and extract greater efficiencies from integration of technology in tax administration.
The advancements include the roll out of iTax in 2014, start of the Tax Invoice Management System (TIMS) device-based approach in 2016, introduction of Electronic Tax Invoice Management System (eTIMS) in 2022 and more recently the rollout of Electronic Rental Income Tax Systems (eRITS) as well as capabilities for reverse invoicing in 2024.
In 2025, there is little, if any, innovation that is recasting and upending the technological landscape more than Artificial Intelligence and perhaps this presents an opportune moment for Kenya to reflect on what this disruptive advancement portends for the taxation landscape.
So, what can Kenyans expect as the reality of embedding artificial intelligence in tax administration becomes the mainstay of engagement with the revenue authority?
One thing we can already see from peer economies venturing on this path is that risk mapping and profiling is bound to enter a fairly sophisticated terrain, both from a speed and complexity standpoint especially as the government scouts for ways of trimming the Sh400 billion per annum tax expenditure.
In April this year, the West Asian Republic of Armenia’s State Revenue Collection Agency began piloting Artificial Intelligence powered tax revenue administration.
The solution deployed was targeted at reading and interpreting tax invoices, detection of fraud as well as predictive modelling to identify anomalies in tax filings.
We are seeing similar exploits in South Africa where the country’s revenue service is now using machine learning to fish out discrepancies such as anomalous tax claims that could easily slip through the cracks when audited by human personnel.
It could also go a long way in ascertaining whether there is indeed truth to the government’s assertion that 30.0 percent of all VAT refund claims are fictitious and buttress the seemingly elusive pursuit of cleaning up the Value Added Tax Act.
In the present environment where Finance Act 2025 has introduced Section 66A to the Value Added Tax Act creating a window for clawback by the revenue authority in the event of abuse of goods and/or services that benefit from zero rated and exempt status, perhaps Kenya could borrow from Armenia and South Africa and leverage Artificial Intelligence with a more targeted approach.
It also suggests to us that it could only be a matter of time before tax audits are optimised by Artificial Intelligence and hopefully stave off the recurrent back and forth between the authority and taxpayers over the quality of assessments conducted.
A good case here would be drawn from the latest developments in the Republic of Latvia where the government introduced an Artificial Intelligence enabled Taxpayer Rating System which grades taxpayers based on risk profile effective January 2024.
Letter A, which is the highest rating, is used to capture taxpayers that demonstrate stellar compliance with minimal risks. Letter B captures taxpayers who by and large fulfil their obligations but need to improve compliance.
Letter C captures taxpayers that have glaring compliance violations while letter N capture an inactive taxpayer hence no declared transactions. Letter J is designated for newly registered taxpayers.
Given that we have periodically seen the government make attempts to introduce a pay-to-play provision in Kenya’s tax regime through the Finance Act, such ranking could go a long way in making audits a lot more targeted and stave off the perennial frivolous assessments and appeals.
The writer is the host of Business Redefined & CFO Chat on NTV Kenya & a Research Fellow at the Strathmore Tax Research Centre.
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