- KRA reports record KES2.84 trillion (up 10.6%) in tax collections, but PAYE grew just 6.7% as formal sector employment shrank to 15.3% of total jobs, the narrowest tax base in years.
- Manufacturing contributed KES 462 billion (16.2% of revenue) while excise tax on betting services outperformed by 115.9%, underscoring where real economic activity is concentrated.
- Interest payments consume 60–70% of revenues, the Middle East conflict is widening the current account deficit and manufacturing growth is projected to slow to just 1.9% in 2026.
The Kenya Revenue Authority (KRA) collected a record $22 billion (KES 2.844 trillion) in the fiscal year ended June 30, reflecting a 10.6 per cent increase that underscores the resilience of domestic revenue mobilization in the face of rising global headwinds.
While the surge in tax collections, fueled by gains in manufacturing, energy and a booming betting industry, points to pockets of economic strength, a closer look reveals a more complex picture of elevated debt, a squeezed formal workforce, and mounting external pressures.
Sectoral Drivers and Tax Collections
The manufacturing sector was the star performer, contributing KES 462 billion, a 9.2 per cent year-on-year increase and accounting for 16.2 per cent of total revenue. Close behind was the energy sector, which generated KES 445 billion, largely driven by uptick in customs revenues from oil taxes.
These five key sectors, including financial services, ICT, and wholesale trade, account for 62 per cent of all KRA revenue despite representing just over a quarter of nominal GDP.
Official figures released on Friday highlights a significant shift in consumer behavior and sectoral activity. Excise tax on betting services surpassed its target by a remarkable margin, posting a 115.9 per cent performance rate and 24.9 per cent growth, signaling the sector’s soaring popularity and gains.
Meanwhile, tax collections from the Significant Economic Presence Tax (Digital Service Tax) doubled to KES1.609 billion during the year following the expansion of its scope in the Finance Act 2025.
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Kenya’s Underlying Economic Fault Lines
Despite the headline-grabbing collections, the breakdown of the revenue reveals critical vulnerabilities in East Africa’s biggest economy. Pay As You Earn (PAYE) grew by a relatively modest 6.7 per cent, lagging behind the overall revenue growth and significantly below the 8.5 per cent average of the prior two years.
This underperformance reflects a worrying structural trend where the formal sector’s contribution to total employment has continued its downward slide, shrinking from 15.7 per cent in 2022 to just 15.3 per cent in 2025. This points to an economy where job creation remains concentrated in the informal sector, placing a heavier burden on a shrinking pool of salaried workers to sustain income tax revenues.
This strain is mirrored by the banking sector’s struggle with asset quality. While the non-performing loan (NPL) ratio has improved from its peak of 17.6 per cent in August 2025 to 15.3 per cent in May 2026, it remains at levels that would be considered highly elevated in developed markets.
The decline in bad debts, partly driven by write-offs and aggressive recovery efforts, suggests underlying stress persists in key areas like trade, manufacturing, and personal lending. As banks become more cautious, this could constrain the private sector credit growth vital for broad-based economic expansion.
The KRA’s success in collecting revenue comes as Kenya’s broader economic outlook darkens. The ongoing conflict in the Middle East is a significant source of external pressure. The Central Bank of Kenya (CBK) has cut its 2026 growth forecast to 4.9 per cent, with the manufacturing sector expected to bear the brunt, growing at a projected meager 1.9 per cent due to surging energy costs. This industrial slowdown is already evident, with the Stanbic Bank Kenya PMI contracting to 46.6 in May 2026.
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External shocks threatening tax collections
These external shocks are also widening the current account deficit. The CBK projects it to reach 3 per cent of GDP in 2026, up from 2.1 per cent in 2025, driven by a ballooning fuel import bill and sluggish export and remittance growth. This puts renewed pressure on the Kenyan shilling and foreign exchange reserves, creating a challenging environment for the CBK .
KRA’s record performance is a testament to improved tax administration and technological integration, but it should not be mistaken for a sign of a wholly healthy economy. With fiscal constraints from high debt and structural weaknesses in the labor market, the government’s ability to absorb external shocks and stimulate broad-based growth remains a key concern for investors and policymakers.
