KRA misses income tax target by Sh32.1 billion after double tax reforms on housing, SHA levies
The National Treasury’s draft 2025 Budget Review and Outlook Paper (BROP) indicates that KRA collected Sh1.093 trillion in income tax against a target of Sh1.125 trillion for the fiscal year ending June.
Kenya’s move to eliminate double taxation on statutory deductions has left a notable gap in income tax revenue, with the Kenya Revenue Authority (KRA) collecting Sh32.1 billion less than planned in the last financial year.
The shortfall comes after reforms made deductions toward the housing levy, the Social Health Insurance Fund (SHIF), and post-retirement medical funds, exempt from being taxed twice.
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The National Treasury’s draft 2025 Budget Review and Outlook Paper (BROP) indicates that KRA collected Sh1.093 trillion in income tax against a target of Sh1.125 trillion for the fiscal year ending June.
Income tax covers both Pay As You Earn (PAYE) from employees and corporate income tax levied on business profits.
Before December last year, employees were taxed on housing and health contributions even after they were deducted from salaries, inflating their PAYE liability.
The Tax Laws (Amendment) Act, 2024, which came into effect on December 27, ended this practice.
“The performance of PAYE was adversely affected by the private sector’s non-payment of annual bonuses in June 2025; the application of tax refunds by large taxpayers to offset current PAYE tax liabilities by a number of firms; and the impact of policy change (adjusting SHIF and Housing Levy from a relief regime to allowable deductions before tax computation),” the BROP reads.
Treasury noted that the continued freeze on corporate bonuses, which had already affected the previous year’s tax collections, remained a drag on revenue.
PAYE alone fell short by Sh6.1 billion, signalling weaker earnings among permanent employees.
The largest gap was in “other income,” where KRA collected Sh26.03 billion less than the Sh558.56 billion target. This category includes corporate income tax on business profits.
Despite the shortfall, Treasury says the performance represents an improvement from the previous financial year when income tax missed its target by Sh49.88 billion, largely due to delayed public sector salary disbursements and non-payment of bonuses by companies.
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