(NAIROBI, KENYA) – Kenya’s tax authority is missing out on an estimated Sh100 billion each year in rental income taxes because many property owners do not pay voluntarily. The gap between what should be collected and what actually reaches the government was laid out by the new commissioner general of the Kenya Revenue Authority, Adan Mohammed, during a meeting with the National Assembly’s Finance and National Planning committee.
Mr Mohammed told lawmakers that the KRA currently collects only Sh16 billion annually from rental income, a fraction of the Sh100 billion that a 7.5 percent tax on rental earnings should yield. At the current exchange rate of approximately 150 Kenyan Shillings to one US dollar in June 2026, the Sh84 billion shortfall represents about US$560 million in lost public revenue each year. The Sh16 billion currently collected equates to roughly US$107 million. Mr Mohammed said the reason for the gap is straightforward: many landlords are unwilling to pay and have found ways to avoid doing so.
The commissioner general described an agency that needs to change its approach to reach more taxpayers. He said that in other countries, tax authorities use intrusive methods to access data and ensure people pay their fair share. The KRA is now exploring new ways to bring more citizens into the tax net. He contrasted the current approach of using force on a small number of taxpayers with a future in which the revenue base is broadened and many more people pay smaller amounts.
The narrowness of Kenya’s tax base was made clear by the figures Mr Mohammed shared with the committee. Only 12,000 companies, or 55 percent of registered firms, pay tax. Three million salaried workers also contribute. This leaves a very large portion of economic activity outside the formal tax system.
The problem is not limited to property. The KRA is also losing about Sh13 billion each year on smuggled mobile phones. The authority collects Sh2 billion in taxes on imported cellular devices, against an annual target of Sh15 billion. The Sh13 billion gap is equal to roughly US$87 million. Mr Mohammed asked MPs not to scrap the 16 percent value added tax on imported phones, arguing that removing it would deepen the revenue loss.
The Finance Bill 2026 proposes cutting the excise tax on imported mobile phones from a high of 53 percent to 25 percent. The Treasury has also suggested dropping the 16 percent VAT on imported cellular devices. Mr Mohammed explained that the current tax burden on imported phones exceeds 50 percent when combining customs duties, excise duty, VAT, the Railway Development Levy and the Import Declaration Fee. He said that the higher the tax on any item, the greater the incentive to evade it.
The Treasury principal secretary Chris Kiptoo told the same committee that mobile phones currently face five domestic taxes and levies during importation and along the supply chain. These are a 16 percent VAT, a 10 percent excise duty, a 25 percent import duty, a 2.5 percent Import Declaration Fee and a 2 percent Railway Development Levy. Treasury Cabinet Secretary John Mbadi had earlier said the 25 percent excise duty proposed in the Finance Bill would be a significant cut from the current 55.5 percent tariff on phone imports.
The Bill also seeks to change the point at which tax is collected. It proposes that a 25 percent excise duty be paid to the KRA at the time a phone is activated, rather than at the point of entry. Mr Mbadi argued this would simplify the system and free up liquidity for businesses that currently pay heavy duties before selling their stock.
Mr Mohammed expressed caution. He told the committee chaired by Molo MP Kuria Kimani that the KRA proposes removing import duty and the Railway Development Levy but retaining the 16 percent VAT and excise duty. He said removing the 25 percent import duty makes sense because it aligns with the East African Community Common External Tariff. But he warned that cutting too deep, including removing VAT on imported phones, could be a mistake.
Committee chair Kuria Kimani raised a practical concern. He said charging tax at the point of activation could inconvenience small traders such as market women and motorcycle taxi operators. He also warned of a risk that importers might bring in high end phones, store them without paying tax at the port of entry, and then export them to neighbouring countries including Uganda, Tanzania or South Sudan without any tax being paid.
Mr Mohammed responded that a system involving mobile service providers would be used to check the IMEI numbers of devices against a white list before activation with a SIM card. A phone imported without paying tax at the point of entry would still trigger a tax requirement when activated. He said a person could import a high end phone and keep it without paying at the border, but the moment of activation would bring the tax obligation.