The National Treasury has significantly lowered its revenue expectations for the upcoming fiscal year, slashing its tax collection target by Sh96 billion. This strategic retreat, detailed in the latest Budget Policy Statement (BPS), signals a shift in the government’s approach as it navigates the dual pressures of youth-led political activism and the looming 2027 General Election.
The Treasury now projects tax revenues of Sh2.9 trillion for the year ending June 2027, a downward revision from the initial Sh2.99 trillion goal. Officials admit that the window for introducing new levies has effectively closed, forcing the state to seek alternative revenue streams, including the potential sale of stakes in blue-chip parastatals such as Safaricom and the Kenya Pipeline Company (KPC).
The “Gen Z” Factor and Political Calculus
The memory of the June 2024 protests, which resulted in more than 50 deaths and the withdrawal of a Sh346 billion tax package, continues to shape fiscal policy. With the 2027 elections approaching, the President William Ruto administration is moving to placate an electorate weary of the high cost of living and perceived betrayals of the “Hustler” campaign promises.
“Last year’s events were a learning point for all of us,” Treasury Cabinet Secretary John Mbadi stated recently. “We had to look for ways of doing things differently.”
The decision to offer a “soft” Finance Act for 2025—which lacked aggressive hikes on alcohol, airtime, and cigarettes—has already begun to impact the bottom line. Treasury Principal Secretary Chris Kiptoo noted that tax receipts are growing slower than anticipated due to these revenue-reducing measures and persistent compliance gaps.
Widening Deficits and Revenue Shortfalls
The move away from aggressive taxation comes at a cost. The projected fiscal deficit for 2026/27 has been revised upward to 5.3 percent of GDP (Sh1.1 trillion), from an earlier estimate of 4.9 percent.
Performance data through October 2025 underscores the challenge:
- Total Revenue Gap: Ordinary revenue collection fell short by Sh107.7 billion.
- Income Tax: Recorded the largest deficit at Sh74.6 billion.
- VAT & Excise: Missed targets by Sh16.2 billion and Sh9.1 billion, respectively.
Despite these shortfalls, the government has kept total spending unchanged at Sh4.64 trillion, intensifying the need for increased borrowing to bridge the widening gap.
The New Strategy: Data and Surveillance
In place of new tax laws, the Kenya Revenue Authority (KRA) is pivoting toward aggressive administrative enforcement. The strategy focuses on “tax cheats” through high-tech surveillance and data integration.
- Third-Party Linkages: KRA is increasingly connecting its systems with banks and mobile money platforms like M-Pesa to monitor taxpayer activities.
- Technology-Led Enforcement: The full rollout of digital Electronic Tax Registers (ETRs) and internet-enabled cameras in factories aims to curb leakage in real-time.
- Audits and Vetting: Lifestyle audits and background checks are being deployed to flag individuals whose spending does not align with their declared income.
Current Revenue Performance (July–October 2025)
| Category | Target (Sh Billion) | Actual (Sh Billion) | Shortfall (Sh Billion) |
| Ordinary Revenue | 874.5 | 766.8 | 107.7 |
| Income Tax | 405.7 | 331.0 | 74.7 |
| VAT | — | — | 16.2 |
As the government enters the final full fiscal cycle before the next election, the Treasury’s “tame” approach aims to secure social order, even if it means sacrificing short-term revenue growth for long-term political stability.
