The Kenya Revenue Authority (KRA) is considering a sweeping overhaul of the country’s Value Added Tax system that would draw small traders into the formal tax framework by scrapping the current registration threshold.
At present, only businesses with annual taxable turnover of at least KSh 5 million are required to register for VAT. The proposed changes would reduce that threshold to zero, meaning all businesses, regardless of size, would be обязed to register, charge, and remit VAT at the standard 16% rate.
If adopted, the shift would significantly widen the tax net to include micro and small enterprises that have largely operated outside the VAT regime. These businesses would be expected to issue compliant invoices, keep detailed records, and file monthly returns, typically by the 20th of the following month.
The proposal forms part of broader efforts by the authority to strengthen revenue collection and close compliance gaps. Currently, only about 230,000 entities are VAT-registered, a fraction of the potential taxpayer base. By removing the threshold, KRA aims to boost VAT collections from roughly KSh 653 billion to over KSh 1 trillion.
In practical terms, the move would touch everyday commerce. Small-scale traders selling items such as soft drinks, mobile phones, cosmetics, and cooking gas, as well as service providers like consultants, would need to factor VAT into their pricing. While some essential goods remain exempt, the wider application of VAT is likely to push up the cost of many commonly used products and services.
From a policy standpoint, the proposal presents a trade-off. On one hand, it broadens the tax base without increasing the VAT rate, supporting fiscal stability. On the other, it introduces new compliance demands for small businesses, including administrative requirements tied to digital systems such as eTIMS and the need for consistent monthly filings.
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There are also concerns about knock-on effects. Businesses operating on tight margins may pass the added costs to consumers or struggle to meet the new compliance standards. Given the size of Kenya’s informal sector, the changes could influence both business sustainability and participation in the formal economy.
The proposal is still under review and will likely feed into upcoming fiscal policy debates, including the Finance Bill. Its final shape will determine how well it balances improved tax collection against the realities facing small enterprises.
