Treasury lowers tax collection target by Sh40 billion due to continued underperformance

The National Treasury has revised downwards its tax collection target for the current financial year by Sh40 billion, citing continued revenue shortfalls and underperformance by the Kenya Revenue Authority (KRA).

In new submissions to Parliament, the Treasury now expects to collect Sh2.54 trillion in ordinary revenue for the financial year ending June 2025—down from the Sh2.58 trillion projection in the second supplementary budget.

This marks the third downward revision in the government’s tax expectations since the fiscal year began.

“The National Treasury has revised its revenue projection downwards from Sh3.018 trillion initially projected in Budget Review and Outlook Paper 2024 to the projection in Division of Revenue Bill 2025 and Budget Policy Statement (BPS) 2025 of Sh2.835 trillion,” the Treasury told the National Assembly’s Budget and Appropriations Committee.

“The projection is informed by ordinary revenue projection revisions for the financial year 2024/25 from an initial target of Sh2.917 trillion to a baseline of Sh2.54 trillion.”

The Treasury said the latest adjustment is a result of persistent underperformance in tax collections, with the KRA falling short across several tax heads over the past nine months.

In a report dated April 1 and tabled before the budget committee, the Treasury defended the revised figures, saying they are key in informing the proposal to allocate Sh405 billion to county governments in the 2025/26 fiscal year.

“Ordinary revenue performance in the financial year 2024/25 is likely to result in lower ordinary revenue projected for 2025/26,” the Treasury said.

Initially, the Treasury had projected to collect Sh2.9 trillion in taxes in the current fiscal year. However, this was revised to Sh2.63 trillion in the first supplementary budget released in July 2024 and later lowered by another Sh50 billion to Sh2.58 trillion in the second supplementary budget, following a series of below-target performances between July and December 2024.

According to the 2025 BPS, a shortfall of Sh93.2 billion in tax revenue in the six months to December 2024 forced the government to adjust the revenue projections again, from Sh2.63 trillion to Sh2.58 trillion.

“Taking into account the ordinary revenue shortfall to December 2024 of Sh93.2 billion, the additional revenue from the Tax Laws (Amendment) Act 2024 and the Business Laws Amendment Act, 2024, the total revenue projections to June 2025 has been revised to Sh3.065 trillion (17.6 per cent of GDP),” the Treasury said.

As of February 2025, KRA had collected Sh1.624 trillion, leaving it with a daunting Sh917.8 billion to collect within just four months before the financial year closes in June.

If the government had stuck with the original tax collection target of Sh2.917 trillion, KRA would now be facing an even steeper target of Sh1.29 trillion in the remaining months.

Treasury attributed the dip in performance to weaker-than-expected economic activity in the first half of the fiscal year, citing both domestic and global shocks as key contributors.

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