Half of Kenyan companies failed to pay corporate taxes in 2024 - KRA

A report by the Kenya Revenue Authority (KRA) has revealed that approximately half of Kenyan companies failed to pay corporate taxes in the financial year ending June 2024, either due to significant losses or tax evasion.

The report shows that out of the 341,793 firms that submitted tax returns, only 171,585 fulfilled their tax obligations, reflecting a compliance rate of 50.2 per cent.

According to the Authority, the gap between firms filing returns and those paying corporate income tax (CIT) has steadily closed due to enhanced intelligence-led audits and prosecutions of tax offenders.

"The compliance rate rose from 15.7 per cent in June 2021 to 50.2 per cent in June 2024," reads the report.

The Authority emphasised that it is addressing tax evasion by investing in intelligence and audits.

Commissioner for Domestic Taxes at KRA Rispah Simiyu noted that the authority is utilising both internal and third-party data to identify non-compliant companies.

"Companies that deliberately evade taxes are subject to investigations and potential prosecution," Simiyu said.

Data integration

She added that the KRA is working on collaborations with key stakeholders to improve data integration and strengthen tax compliance.

During the financial year ending June 2024, the KRA collected Sh276.94 billion in corporate taxes, a 4.98 per cent increase from Sh263.81 billion in the previous year.

However, this marked the slowest growth in corporate income receipts since June 2021.

The Authority’s data also shows a worrying trend of declining firms filing annual returns.

From a peak of 509,058 firms in 2021, the number has dropped to 341,793 by the end of the last financial year. Only 122,907 of 383,398 companies that filed returns in 2023 paid their taxes, representing a compliance rate of 32.06 per cent.

To address low compliance, the Kenya Kwanza administration has proposed lowering corporate income tax from 30 per cent to 25 per cent through the Medium Term Revenue Strategy.

The Treasury argues that reducing the rate to below Africa’s average of 29 per cent will not only improve compliance but also attract foreign investors.

"Studies have shown that high rates of corporate income tax discourage foreign direct investments and encourage investors to lobby for lower rates or tax exemptions," the Treasury said in the strategy.