Three-quarters of companies registered for corporate income tax (CIT) did not pay taxes on earnings in the year to June, pointing to deepening losses and tax avoidance.
Fresh data from the Kenya Revenue Authority (KRA) shows that 156,232 out of 618,201 firms on the corporate tax register paid up their fair share to the taxman, reflecting a compliance rate of 25.2 percent.
This indicates that 461,969 firms —about 74.73 percent—did not remit any money on profitability, exposing a weak tax base that derails the government’s revenue mobilisation efforts.
The proportion of firms that failed to pay taxes on corporate earnings rose 38 percent jump from 401,274 last year.
This is despite an increase in intelligence-led audits and prosecution of tax cheats.
The taxman has recently upped the crackdown on evasion among super-rich individuals who usually use sophisticated accounting techniques that are difficult to trace, including offshore tax shelters.
This follows reports that the super-rich, especially with political connections, have hidden wealth in trusts and a labyrinth of companies to evade taxes. Kenya’s corporate tax laws require resident companies to pay 30 percent of annual profits, while foreign-owned firms operating locally face a 37.5 percent rate.
Tax experts say the gap between registered firms and actual taxpayers cannot be explained by business losses alone.
Stephen Waweru, a senior manager for tax services at KPMG, said the numbers highlight both structural and behavioural challenges in corporate tax compliance.
“Many firms are registered, many file returns, but relatively few actually pay instalments,” he told the Business Daily. “The level of compliance seems to be improving, but it still falls far below what one would expect if firms in the tax net were largely profitable.”
Mr Waweru says this could be explained by the share of businesses—especially small and medium-sized enterprises or new entrants—that are genuinely loss-making, often squeezed by high inflation, rising input costs, exchange rate swings and supply chain disruptions.
Others are simply inactive or dormant, a reality the KRA has acknowledged in the past.
Kenya has witnessed a rising number of dormant companies, mainly start-ups registered in recent years with the target of supplying the national government, county governments and State corporations with goods and services.
Mr Waweru pointed out that the role of aggressive tax planning, particularly among multinationals, has seen firms pay less or zero tax through the exploitation of legal loopholes and discrepancies between tax jurisdictions.
Practices such as transfer pricing allow firms to shift profits to lower-tax jurisdictions such as Mauritius.
“Many companies may be loss-making, but the magnitude of the gap between registered firms and firms paying instalment CIT suggests that more is going on than just economic loss,” Mr Waweru said.
“Widespread avoidance, legal but aggressive planning, and transfer pricing are almost certainly part of the story.”
Companies remitted Sh304.833 billion in corporation taxes in the 12 months to June 2025, a 9.9 percent rise over the previous year. The taxes on corporate earnings, an indicator of economic performance, were largely driven by ICT, manufacturing, financial, real estate, wholesale and retail sectors, the KRA said.
The revelation that 75 percent of firms on KRA’s register did not contribute corporate tax is a stark reminder of Kenya’s fragile fiscal foundation.
While official statistics suggest a growing corporate sector, the taxman’s books tell a different story: a narrow pool of companies carrying the burden for the majority.
For the government, the challenge is not just to widen the tax net but to ensure that the entities within it are real, active, and profitable. Otherwise, the corporate tax base risks remaining a mirage—big in numbers, but hollow in substance.
Tax administrators are responding by deepening the use of technology and data-driven oversight.
Alex Mwangi, the acting commissioner for business strategy, technology & enterprise modernisation, said the taxman had turned to analytics to detect non-compliance.
By creating risk profiles based on anomalies and transaction patterns, Mr Mwangi told the Business Daily, the authority can focus its enforcement on non-compliant taxpayers rather than blanket audits that often disrupt honest businesses.
He stressed that the iTax system cross-references information from different databases, such as the Business Registration Service and e-Citizen, to spot inconsistencies in returns, while the Electronic Tax Invoice Management System (eTIMS) provides real-time visibility of business transactions.
“KRA leverages data analytics to identify trends, patterns, and anomalies that signal potential non-compliance,” Mr Mwangi said.
KRA officials hope these measures will curb underreporting and make it harder for firms to hide behind perpetual losses, while lessening the compliance burden for honest businesses.
“KRA is progressively using data to pre-fill tax returns for some taxpayers,” Mr Mwangi said, adding that this approach is intended to simplify the filing process, reduce compliance costs and, ultimately, lift overall compliance levels.
The weak compliance came against a backdrop of severe liquidity pressures in the private sector in the year to June 2025.
Most households and businesses cut spending decisions for non-essential goods and services, as captured by the monthly Stanbic Purchasing Managers Index. As a result, companies increasingly relied on tax refunds owed by the KRA to settle their dues.
In the year to June 2025, firms tapped Sh28.62 billion worth of outstanding refunds to offset quarterly corporate tax obligations. This accounted for 57.6 percent of the Sh49.67 billion verified claims, which were used to pay taxes falling due, and marked a doubling of the use of the adjustment vouchers compared to the prior year.
“The increased use of refunds points to cash flow challenges on the side of taxpayers because I am offering to use adjustment vouchers to offset other taxes because I can’t afford to give that money,” Philip Muema, managing partner at business and tax advisory firm Andersen Kenya, said in July.
The disclosures are likely to revive debate on the Treasury’s controversial attempt to introduce a minimum tax on corporate turnover in 2020. The levy, pegged at one percent of gross sales, was designed to capture revenue from firms that routinely declare losses yet remain active.
Business lobbies successfully challenged the tax in court, arguing it punished loss-making but legitimate enterprises.
The Court of Appeal struck it down in 2021 on the grounds that forcing all companies to pay a percentage of their gross sales as opposed to profit to the taxman was contrary to Article 201 of the Constitution, which requires fair distribution of the taxation burden.
But Treasury officials have never hidden their desire to revisit the measure.
The Treasury maintains in the Medium Term Revenue Strategy (MTRS), which runs from July 2024 to June 2027, that the KRA will “redesign the minimum tax taking into account the issues raised by the court on previous minimum tax” in a renewed bid to ensure “fairness” in taxation of income.
“The government recognises the need for an entity to pay a minimum tax to facilitate the government to achieve its objectives. This is due to the fact that some entities prepare their accounts to depict perpetual loss position thus evading taxation,” the Treasury wrote in the MTRS.
