Revenue losses from tax waivers, graft hit Sh500 billion mark

The country is losing out on vital public funds, with a new report showing that Kenya forfeited over Sh500 billion in tax revenue in 2023 due to waivers, unregulated incentives, and corruption.

The figure, an increase from Sh393.6 billion in 2022, represents 3.3% of the national Gross Domestic Product and has raised concerns about the sustainability of key government programmes.

The National Taxpayers Association (NTA), which released the report in Nairobi, points to a pattern of financial mismanagement involving dishonest tax practices and poor oversight.

The report, presented by lawyer Denis Moroga, identifies bribery, theft by officials, and abuse of tax systems as key contributors to the growing problem of Illicit Financial Flows (IFFs).

"Kenya's national revenue loses ground through a combination of deliberate tax evasion and aggressive avoidance schemes, and abusive transfer pricing that shifts taxable profits to low-tax jurisdictions," the report states.

The document further highlights how generous tax incentives meant to attract investment have backfired. In many cases, the expected growth and jobs have not materialised, while the cost to the public has continued to rise.

Outdated policies and unchecked practices are also linked to trade mis-invoicing, where businesses declare false figures for imports and exports to avoid paying the correct amount of tax.

According to the report, such actions, together with laundering of illegal funds, are weakening Kenya’s ability to raise its own revenue.

Outgoing NTA Chief Executive Officer Irene Otieno said the country is giving up too much revenue through existing tax policies.

"If you look at how much Kenya loses as a country, it's a significant amount, and drawing from the tax expenditure reports we see authored by the Treasury, we see that Kenya is foregoing a lot of revenue."

Beyond the national level, the report shows that corruption is deeply rooted in county governments. It details how funds for roads, clinics, and water projects are lost through inflated tenders, ghost workers, and fraudulent procurement processes.

Otieno has asked the Senate to take a stronger role in addressing the issue of foregone revenue, especially because it directly affects the money available to counties.

She also called on the Council of Governors to push back on national policies that drain county budgets.

"So, today our key findings from our report show that it is imperative that the Senate and the Council of Governors find a way of protecting devolution by pushing back the national government to address revenue foregone because this will translate to resources to the counties, and therefore improve delivery of public services," she said.

The NTA report is based on a mix of legal analysis, secondary data, and interviews with government and civil society players.

It finds that despite the existence of clear tax laws and anti-corruption rules, major weaknesses still exist in how these are enforced.