By Peter John
The Kenya Revenue Authority (KRA) has proposed sweeping changes to the country’s tax system that could bring even the smallest businesses into the Value Added Tax (VAT) net, sparking debate over fairness, revenue growth, and the cost of living.
Under the current framework, only businesses with an annual turnover of at least KSh5 million are required to register for VAT.
This threshold has long exempted micro and small enterprises—commonly referred to as the “kadogo economy”—from the complexities of VAT compliance.
Instead, many operate under simplified tax regimes with fewer administrative requirements.
The new proposal seeks to eliminate that threshold entirely, meaning all businesses, regardless of size, would be required to register for VAT.
As part of the changes, traders would need to issue electronic invoices through KRA’s eTIMS system, file monthly returns, and charge the standard 16 percent VAT on applicable goods and services.
The move is part of a broader effort by KRA to increase revenue collection.
The authority is targeting a rise in VAT collections from about KSh653 billion to nearly KSh1 trillion, a significant jump aimed at strengthening government finances.
Expanding the tax base to include informal sector players is seen by supporters as a key step toward achieving this goal.
However, the proposal has raised concerns among small business owners and economic observers.
Many argue that imposing VAT obligations on micro-enterprises could introduce new financial and administrative burdens, particularly for traders who lack the capacity to maintain detailed records or navigate digital tax systems.
There are also fears that consumers will ultimately bear the cost.
Since VAT is typically passed on to buyers, prices of everyday goods—such as snacks, household items, and electronics—could rise if small businesses are forced to add the 16 percent tax.
This comes at a time when many Kenyans are already grappling with a high cost of living.
Supporters of the plan, however, maintain that it would create a more equitable tax system by ensuring all businesses contribute their fair share.
They also argue that formalizing informal enterprises could improve transparency and strengthen the overall economy in the long term.
The proposal is expected to be a key point of discussion in the upcoming Finance Bill, where policymakers will weigh its potential benefits against the risks to small businesses and consumers.
If adopted, the changes would mark a major shift in Kenya’s tax landscape, redefining how businesses operate and how revenue is collected across the country.
