Kenya’s tax arrears hit Sh2.3 trillion, raising alarm over KRA's struggles

Kenya's tax arrears have reached a new high, with the latest report revealing that the total amount of uncollected taxes has more than doubled to Sh2.3 trillion.

The significant increase in arrears is a major cause for concern, signaling serious issues within the Kenya Revenue Authority (KRA) as it battles to meet its tax collection targets.

The Auditor-General's report indicates that Sh2.1 trillion of the arrears are categorized by the KRA as either under validation, uncollectable, or still in reconciliation processes.

Among the various outstanding debts, Sh765.3 billion is attributed to legacy system debts, while Sh906 million is in customs-related uncollectable debts.

Public sector debts account for Sh231.6 billion.

A critical issue highlighted in the report is the backlog of tax disputes, with Sh391.8 billion under appeal and Sh138.6 billion awaiting validation.

Additionally, Sh588.5 billion worth of disputes have been resolved but have not yet been updated in taxpayer ledgers.

The rise in uncollected taxes comes at a time when the KRA is under increasing pressure to meet its ambitious revenue targets.

Individuals and businesses are voicing concerns over the tax burden, citing its negative impact on spending power and profits.

In response to this growing frustration, the KRA has relied more on arbitration and amnesty programs to resolve disputes and encourage non-compliant taxpayers to settle their dues.

Despite these efforts, the KRA has struggled to make significant progress in its collections.

As a result, the National Treasury has revised the country’s tax collection target for the fiscal year down by Sh516 billion.

This reduction of 17.7 percent from the original target is an acknowledgment of the challenges the KRA is currently facing in its tax collection efforts.

As the tax arrears continue to accumulate and taxpayers challenge the authority’s methods, the future of Kenya's tax system remains uncertain.