Kenya's VAT collections slump 4.3% in first decline since Covid-19 pandemic

Treasury CS John Mbadi who announced on February 3, 2025 that the projected tax revenue has been lowered from Sh2.631 trillion to Sh2.538 trillion. (Photo: National Treasury)

By Lucy Mumbi
Monday, February 17, 2025

The collections dropped by 4.3 per cent in the six months to December 2024.

VAT collections in Kenya fell for the first time since the Covid-19 pandemic, dropping by 4.3 per cent in the six months to December 2024.

The decline, attributed to reduced consumer spending and increased payroll deductions, saw total VAT revenue shrink to Sh304.1 billion from Sh317.8 billion recorded in the same period in 2023, according to data from the National Treasury.

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The decrease in VAT revenue reflected the impact of reduced household and personal incomes amid rising statutory deductions from workers’ salaries.

Higher payroll deductions, including contributions to the Social Health Insurance Fund—formerly the National Hospital Insurance Fund—alongside increased National Social Security Fund (NSSF) remittances and the Housing Levy, which deducts 1.5 per cent of gross salaries, significantly reduced disposable incomes.

The drop in VAT collections contributed to a Sh93.2 billion revenue shortfall in the first half of the 2024/25 financial year.

“Ordinary revenue for the period to December 2024 was Sh1.157 trillion against a target of Sh1.251 trillion, translating into a shortfall of Sh93.2 billion,” the National Treasury said.

“All broad tax categories of ordinary revenue fell short of the respective targets during the review period. VAT recorded the highest shortfall of Sh36.5 billion, income tax recorded a shortfall of Sh28.6 billion, excise duty (Sh13.7 billion) and import duty (Sh6.1 billion).”

This marked the first contraction in VAT revenue since 2020 when pandemic-related restrictions such as night-time curfews and the partial closure of restaurants and entertainment venues stifled consumer spending.

In response to the economic slowdown at the time, the government reduced VAT from 16 per cent to 14 per cent to cushion businesses and households before reinstating the original rate in 2021 to stabilise revenue collection and manage the fiscal deficit.

Overall revenue collection, including ministerial appropriations, also fell short of projections, missing the target by Sh107.6 billion.

Ministerial appropriations in aid, which totalled Sh176.9 billion against the expected Sh191.3 billion, contributed to the overall revenue gap.