Kenya Plans to Charge VAT on Every Business Including Street Vendors
Nairobi, 23 March 2026
Kenya’s Revenue Authority proposes eliminating the 5 million shilling VAT threshold, forcing every business—from corner shops to vegetable sellers—to charge 16% VAT and file monthly returns. The dramatic policy shift aims to nearly double VAT collections from 653 billion to over 1 trillion shillings by July 2026, addressing a 378 billion shilling revenue gap. Currently, only 230,000 businesses are VAT-registered, but the new rules would capture millions of informal traders who have operated below the radar since 2007, potentially triggering significant price increases on everyday goods.
Targeting the ‘Missing Traders’ Problem
The Kenya Revenue Authority’s bold proposal stems from a pressing need to address what officials term ‘missing traders’ - fraudulent VAT-registered entities that vanish after issuing fake invoices for input tax claims [2]. These phantom companies operate without real premises, using questionable identification documents and selling bogus documentation to help larger businesses evade taxes [2]. KRA has already deployed tools like VAT Auto Assessment and the VAT Special Table, introduced in June 2025, which blocks non-compliant traders from filing returns and suspends input VAT claims [4]. However, the authority argues that more drastic action is needed to capture the vast informal economy that has remained largely invisible to tax collection efforts [1][4].
Impact on Everyday Goods and Small Businesses
If implemented, the zero-threshold policy would force every shop, consultant, and mama mboga to become VAT agents overnight, adding fresh reporting burdens and baking 16% VAT into prices of everyday goods and services [2]. The policy would directly affect products including mobile phones, soft drinks, bottled water, cosmetics, snacks, cooking gas and petroleum products, as well as services from freelance consultants [4]. Small businesses with revenues as low as 50,000 shillings per month may face compliance costs exceeding the tax they actually collect under the new proposal [1]. The requirement extends beyond VAT collection to mandatory monthly filing by the 20th of each month, with penalties of 10,000 shillings or 5% of tax due (whichever is higher) for missing deadlines [1].
Revenue Projections and Implementation Timeline
KRA’s ambitious revenue projections suggest that eliminating the threshold, combined with curbing exemptions, could elevate VAT collections to beyond 1 trillion shillings, representing an increase of 53.139% from the current 653 billion shillings collected in the latest financial year [1][4]. This expansion forms part of KRA’s broader strategy to increase active taxpayers from 7 million to 11.5 million by June 2027 and raise annual income tax collections from micro and small businesses from 17 billion to 500 billion shillings [4]. However, the 1 trillion shilling projection relies heavily on the assumption that millions of small businesses below the current threshold will comply with VAT registration and eTIMS integration [1].