Nearly three in four small traders in the Kenya Revenue Authority (KRA) register paid taxes in the financial year to June, outperforming large and medium-sized firms where only one in four companies remitted duty from their earnings.
Data obtained from the KRA suggests that micro and small enterprises in the turnover tax (ToT) register are becoming more compliant than large companies under corporate income tax (CIT), painting a striking contrast between the country’s informal and formal business segments.
KRA disclosed that out of 618,201 companies on its register as at June 2025, a lowly 156,232 remitted instalment taxes — the quarterly payments based on projected annual profits. That means 461,969 firms, or 74.7 percent, did not wire cash to the KRA tied to their profitability.
The share of non-paying firms under CIT regime grew from 72.1 percent in 2023/24, underscoring persistent weaknesses in Kenya’s formal tax base.
But small traders fared better.
The numbers show that 39,040 out of 53,845 firms registered under ToT as at June 2025 remitted tax, translating to a compliance rate of 72.5 percent, up from 61.7 percent in the prior year.
Small traders that filed returns also increased to 45,130 from 38,518, pointing to a rise tax discipline among the so-called “hustler” enterprises which have been nabbed under President William Ruto’s tax expansion drive.
This is relatively high compared to historical compliance trends in the informal sector,” Alex Kanyi, a tax partner at law firm Cliffe Dekker Hofmeyr (CDH), said. “The improvement reflects greater use of digital filing platforms such as iTax, enhanced enforcement and integration of data.”
Small traders are charged 1.5 percent of annual gross sales under the Finance Act 2023. The ToT is a final tax, lessening the compliance headache from a cost and administration perspective because sales are far easier to ascertain than profits.
Traders earning Sh5 million or more annually are also required to register for Value Added Tax (VAT) at the standard 16 percent rate.
The compliance rate for ToT taxpayers last financial year represent a stark contrast to those registered for corporate income tax (CIT), where three-quarters of companies in the roll did not pay the taxman a shilling during the same period.
CDH analysts, however, cautioned that the numbers for small traders largely reflect “effective compliance among a narrow, already formalised subset of traders rather than genuine improvement in sector-wide compliance”.
They say while the ToT compliance rate appear encouraging, it masks deeper “structural and behavioural” challenges in bringing medium, small and micro enterprises (MSMEs) into the tax net.
Kenya’s economy is largely powered by MSMEs, estimated at more than 7.4 million by the Kenya National Bureau of Statistics, with majority operating in largely informal, unregulated environment.
“Despite the economic weight of MSMEs, most remain outside formal taxation,” Mr Kanyi said. Even among those [formally registered], many are not captured under ToT, possibly due to non-compliance, lack of awareness or a deliberate choice to be taxed under the Corporate Income Tax regime instead.”
The limited registration, he added, reflects long-standing challenges in bringing MSMEs into the tax net, including informality, low tax literacy, and perceived compliance burdens.
The KRA restructured earlier in the year in a bid to address this imbalance. In February, agency created a Micro and Small Taxpayers Department, carved out from the former Domestic Taxes Department, in a move to tighten oversight on informal traders while sustaining compliance momentum.
Commissioner-General Humphrey Wattanga appointed a team of 11 senior managers to drive the campaign, led by George Obell who was promoted to Acting Commissioner for the department. Mr Obell previously led high-profile battles against tax-evading multinationals through transfer pricing audits.
The new unit has 10 deputy commissioners, compared to six in the Large and Medium Taxpayers Department — a clear signal of the agency’s focus on bringing the small traders who largely operate in informal, unregulated settings into the tax bracket.
The department is believed to be working with paramilitary Revenue Service Assistants who have been deployed in major towns to conduct market surveillance, identify unregistered businesses, and ensure customers are issued receipts under the Electronic Tax Invoice Management System (eTIMS).
KRA alos announced that it is setting up county-level tax service offices to provide on-site assistance and collaborate with Huduma Centres to make compliance easier for small traders. The goal, insiders say, is to sustain the high compliance rate among small businesses, while reducing leakage from inactive or dormant firms.
The improved performance in the TOT regime comes at a time when KRA has faced criticism from business lobbies such as the Kenya Association of Manufacturers (KAM) and the Kenya National Chamber of Commerce and Industry (KNCCI) for overburdening compliant taxpayers, and letting a large share of businesses go untaxed.
