The Kenya Revenue Authority (KRA) is facing intense scrutiny following an audit revealing significant compliance lapses in the issuance of Tax Compliance Certificates (TCCs). With 43 service centers and 41 tax service offices, the KRA is at the forefront of tax collection in a nation grappling with revenue shortfalls and corruption allegations.

A System in Crisis

The Auditor-General, Nancy Gathungu, has raised alarming concerns regarding the KRA's processes, indicating that 265 TCCs were auto-generated through the iTax system for non-compliant taxpayers. These individuals had neither objected to their tax assessments nor entered into structured payment plans, conditions mandated by the Tax Procedures Act, 2015, for the issuance of such certificates.

“The taxpayers had neither objected to the tax assessments nor entered into a payment plan. Further, 265 TCCs were auto-generated from the iTax system despite having tax liability,” Gathungu stated, emphasizing that this practice contravenes Section 52 of the Act. This section stipulates that TCCs can only be issued if there are no outstanding tax liabilities or if such liabilities are under formal dispute or covered by an approved payment arrangement.

Breach of Trust

The audit's findings reveal a troubling pattern of issuance that could distort fair competition and undermine public trust in tax administration. Tax compliance certificates are essential documents for businesses and individuals, often required for bidding on government contracts, accessing credit, and obtaining various licenses. The unauthorized issuance of these certificates to non-compliant taxpayers raises serious concerns about the integrity of the KRA and its commitment to fair governance.

The KRA has publicly stated that taxpayers must be compliant in filing returns and clearing all outstanding debts to qualify for a TCC. However, the recent audit findings suggest that the agency has strayed from these critical requirements, potentially enabling tax evasion.

A Culture of Corruption

Amidst growing fiscal constraints, State House has previously accused KRA staff of engaging in corrupt practices, including collusion with tax evaders and accepting bribes. President William Ruto has echoed these sentiments, asserting that KRA personnel have resisted digitization efforts aimed at closing revenue loopholes.

These accusations coincide with Kenya's underperformance in tax collection compared to other nations, such as South Africa. The KRA's revenue collections fell short of the target in the financial year ending June 2025, with a shortfall of Sh48 billion against a target of Sh2.305 trillion. In the current financial year, the agency has set an ambitious annual revenue goal of Sh2.97 trillion.

Weak Internal Controls

The audit further highlights systemic weaknesses in compliance analysis, taxpayer assessments, and record-keeping. Critical processes are still largely manual, lacking integration into the iTax system, which hinders transparency and accountability. Requests for compliance reviews are often initiated through informal channels, such as emails, rather than through standardized, system-generated notices.

Moreover, there is a lack of structured performance tracking within KRA's compliance units. Service offices have not maintained proper records of tax officers’ activities linked to revenue mobilization, thereby exacerbating the risk of manipulation and revenue loss.

Gathungu’s findings underscore the urgent need for reforms within the KRA to enhance transparency, efficiency, and accountability. As the government faces mounting pressure to boost revenue collection, the KRA must prioritize the integrity of its operations to rebuild public trust.