[Insight]
Kenya Goes After the Untaxed Economy
[Insight]
Kenya Goes After the Untaxed Economy
Opening Perspective
The Finance Bill 2026 contains adjustments designed to broaden the tax net, specifically targeting the digital economy and the real estate sector. The Departmental Committee on Finance and National Planning took the Bill through public participation across 13 counties, a process that has become politically consequential in Kenya since 2024.
The choice of sectors is deliberate and defensible. Digital commerce and property are where economic activity has grown fastest and where the gap between value created and revenue collected is widest. But the instinct to solve a collection problem with legislation deserves scrutiny. Kenya does not lack tax law. It lacks visibility into transactions that leave no conventional paper trail, and no amount of statutory drafting creates visibility on its own.
What the Bill Is Trying to Fix
Kenya’s revenue performance has been the binding constraint on every fiscal decision of the past three years. The FY2026/27 budget commits KES 4.7 trillion against projected revenue of roughly KES 3.53 trillion, and the gap is filled with borrowing and development financing. Every shilling collected domestically is a shilling not borrowed, which is why broadening the base has become the persistent theme of successive Finance Bills.
The two named sectors present different problems.
The digital economy is hard to observe. Value moves through platforms, many of them non-resident, in transactions that are small, numerous, and frequently informal. Digital service taxes and significant economic presence rules exist in various forms across jurisdictions, and the recurring lesson is that the difficulty is not rate-setting but identifying who owes what. Where platforms cooperate, collection works. Where they do not, or where activity happens peer to peer, it largely does not.
Real estate is the opposite problem. Property is the most visible asset in the economy and cannot be moved. The gap there is not observability but administration: incomplete registries, undervaluation, rental income that goes undeclared, and an enforcement posture that has historically been light. This is a data and systems problem with a known solution, which is what makes persistent underperformance in the sector notable.
Both sit inside a wider reform package. The World Bank’s USD 750 million development policy operation supports governance and public financial management reform including the Treasury Single Account and integrity legislation, and domestic revenue mobilisation is the other half of that fiscal consolidation story.
Kenya does not have a shortage of tax law. It has a shortage of visibility into transactions that leave no paper trail. Legislating a rate for an activity the revenue authority cannot observe produces an obligation, not a payment.
ACAL Advisory Team
Public Sector Advisory
Key Insights
1. Legislating a rate is not the same as collecting a tax
The recurring pattern in expanding tax nets is that compliance follows administrative capability rather than statutory obligation. A rate applied to an activity the revenue authority cannot see produces a legal liability and no payment, plus an enforcement backlog. The productive question about any new provision is not whether it is fair but whether there is a mechanism through which it will actually be collected.
2. Real estate is a registry and valuation problem before it is a rate problem
Undeclared rental income and undervalued property are failures of data and enforcement, not of legislation. Improving land registry completeness, valuation currency, and the linkage between property records and tax records would raise collection without a single new rate. Counties hold significant parts of this data, which makes property taxation one of the few areas where national and county revenue interests genuinely align.
3. Digital taxation works through platforms or it does not work
Where digital tax regimes succeed, they do so by making platforms the collection point rather than pursuing thousands of individual transactors. That requires cooperation from operators, many of them non-resident, and cooperation is easier to secure where the compliance burden is proportionate and the rules are stable. Frequent change is itself a barrier to collection.
4. Predictability has become a competitiveness variable
Kenya has amended its tax framework substantially in each of the last several years. For investors, the cumulative effect of frequent change is difficulty modelling after-tax returns, which raises the discount applied to Kenyan assets. A stable regime collected well is worth more over time than an optimised regime revised annually, and that trade-off is rarely priced into the drafting.
5. Public participation is now a design input, not a procedural step
The 13-county hearing process reflects a shift with real consequences. Since 2024, public participation on revenue measures has been capable of changing outcomes rather than merely documenting consultation. Provisions that survive that process carry more durable legitimacy, and provisions drafted without anticipating it tend not to survive.
6. Domestic revenue is the variable that determines external dependence
The wider fiscal architecture, concessional borrowing, budget support, sustainability-linked instruments, rests on the credibility of Kenya’s revenue trajectory. Improving collection is not only about funding this year’s budget. It is about the terms on which the country borrows for the next decade, and it is the one lever that is entirely domestic.
What This Means
For the National Treasury and the Kenya Revenue Authority. The highest-return work is administrative: data integration between property, business, and tax records, platform-level collection arrangements for digital activity, and enforcement capability. These raise collection from existing law.
For county governments. Property data is a shared national and county interest. Counties that modernise valuation rolls and rate registers improve their own-source revenue and strengthen the national position simultaneously, which makes this a rare aligned reform.
For businesses and investors. Provisions affecting digital services and property carry compliance implications that need assessment during the parliamentary process rather than after enactment. The participation window is where positions are most usefully advanced.
For development partners. Domestic revenue mobilisation is the exit strategy from budget support dependence. Investment in revenue administration capability is among the highest-multiplier support available.
The Implications for ACAL’s Clients
Fiscal and institutional reform is established ACAL territory. The firm has conducted independent capacity and performance verification across all 47 counties under a World Bank-financed devolution programme, assessing public financial management systems including revenue administration, and has delivered strategic planning and institutional strengthening for financial sector institutions including the national savings trust, the mortgage refinance company, and institutional pension funds. Its urban work spans 79 municipalities where own-source revenue performance is directly assessed.
For national revenue institutions, the relevant support is administrative capability assessment and systems design. For counties, own-source revenue architecture and valuation roll modernisation. For businesses, regulatory impact assessment and engagement during participation windows. For partners, independent evaluation of revenue reform implementation.
Closing Perspective
Broadening the tax base is the right objective, and the digital economy and real estate are the right places to look. Whether the Finance Bill 2026 delivers depends on something the Bill itself cannot legislate: the administrative capability to see transactions, value assets accurately, and enforce proportionately. Kenya does not have a shortage of tax law. It has a shortage of visibility into transactions that leave no paper trail. Legislating a rate for an activity the revenue authority cannot observe produces an obligation, not a payment. The reforms that would move collection most are unglamorous, largely administrative, and mostly do not require a Finance Bill at all.
Strategic Insights That Drive Business Success
Strategic Insights That Drive Business Success
Strategic Insights That Drive Business Success
