- KRA’s first quarter collections fell short of the Treasury target despite recording year-on-year growth.
- Higher government spending widened the fiscal deficit, putting pressure on plans to reduce borrowing.
- Stronger customs revenue offered relief as domestic taxes struggled to meet expectations.
Kenya Revenue Authority (KRA) collections fell Ksh58.2 billion short of target in the first quarter of the 2026/2027 financial year, opening a fiscal gap that puts the government’s plan to rein in the deficit under strain.
National Treasury data shows the tax agency raised Ksh655.8 billion in ordinary revenue between July and September 2026. Fiscal planners had set the goal at Ksh714 billion.
Even so, the figure is a clear improvement on last year. Collections were 14.4 per cent higher than the Ksh573.5 billion recorded in the same period of 2025. That year, first quarter revenue had shrunk by 2.9 per cent amid tougher economic conditions.
Spending, however, ran well ahead of plan. By the end of September, government expenditure had overshot the Treasury’s quarterly projection by Ksh116.9 billion. Recurrent spending exceeded its target by Ksh59.3 billion, while development spending and county allocations went over by Ksh34.7 billion and Ksh22.9 billion respectively.
Together, weaker revenue and heavier spending pushed the first quarter fiscal deficit to Ksh329.1 billion, equal to 1.6 per cent of gross domestic product (GDP). That is almost twice the Treasury’s quarterly target of Ksh174.8 billion, or 0.8 per cent of GDP. As a result, the goal of cutting the annual deficit from 6.8 per cent last year to 5.5 per cent now looks harder to reach.
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The revenue picture also differed sharply between tax streams. Customs offered some relief, helped by a 25.6 per cent jump in the value of general imports. In September alone, the Customs and Border Control Department collected Ksh90.053 billion, beating its monthly target by Ksh965 million. Bulk shipments of fertiliser, palm oil, rice and iron or steel drove much of the gain.
Domestic taxes, by contrast, struggled. Pay As You Earn (PAYE), corporation tax and domestic Value Added Tax (VAT) all trailed expectations. Analysts say the pattern points to a shrinking core tax base, with domestic revenue projected to slip to 13.9 per cent of GDP this financial year, compared with 18.1 per cent a decade ago.
A Ksh17.8 billion surplus in Ministerial Appropriations in Aid softened the blow. It narrowed the net revenue shortfall to Ksh40.4 billion.
Still, the pressure on the Treasury is mounting. Debt service is projected to consume nearly 80 per cent of ordinary revenue in 2026/2027, which leaves little room for error. Consequently, the government may have to borrow more locally or cut spending more deeply.
To contain the deficit without hurting the economy, the Treasury is relying on tax rationalisation, a wider digital tax net and the shifting of infrastructure costs to the newly capitalised National Infrastructure Fund (NIF).
By Benedict Aoya
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