Kenya’s Revenue Sources in FY 2025/26

According to Kenya’s Financial Statement for FY 2025/26, the government expects to raise KSh 2.75 trillion in ordinary revenue. Of this, income tax, which constitutes the largest share, is expected to contribute about KSh 1.28 trillion, nearly half of total ordinary revenue. Income tax is made up mainly of corporate tax and pay-as-you-earn (PAYE) from individuals. Given its significance, government revenue is closely tied to the job market, salaries, and business profitability. In simple terms, stronger economic growth creates more opportunities for the government to raise revenue. Beyond income tax, Value Added Tax (VAT) is the second most important source of revenue. VAT is an indirect tax on goods and services, generally applied at a flat rate without regard to income levels. In FY 2025/26, VAT is expected to raise about KSh 772 billion. The government also raises revenue through excise duty, import taxes, levies, and fees. Excise duty is projected to generate about KSh 336 billion, while import taxes are expected to raise around KSh 163 billion. Levies and fees, collectively referred to as Appropriations in Aid, are projected to contribute about KSh 567 billion, a significant share of total revenue. In addition, the government expects to receive about KSh 47 billion in grants, a relatively small portion of overall resources. Taken together, total revenue and grants amount to about KSh 3.37 trillion, which is KSh 923 billion short of projected government spending. This gap is expected to be financed through borrowing or, alternatively, through reductions in planned spending. It is also worth noting that the Kenya Revenue Authority has continued to improve revenue performance in recent years, with income tax collections surpassing the KSh 1 trillion mark in the 2022/23 financial year.