The cost of tax exemptions in Kenya increased from 2.2 per cent of gross domestic product in 2020 to 3.38 per cent, raising concerns about revenue lost through tax incentives and the limited public information available on their impact, according to the World Bank.
In its November 2026 Kenya Economic Update, the lender said tax expenditures had been on an upward trend in recent years, although the Government reported that they declined again in 2024. Tax expenditures refer to revenue the Government forgoes through exemptions, deductions, reduced rates and other preferential tax arrangements.
The report said Kenya ranked 49th out of 102 countries on the Global Tax Expenditure Transparency Index. While the country has published aggregate reports since 2021, the World Bank noted that detailed reporting and analysis of the impact of tax exemptions remained limited.
The lender also raised questions about the expansion of Special Economic Zones, saying the gains in manufacturing and exports had so far been limited. It warned that the incentives could create distortions over which companies qualify to register in the zones.
The report cited concerns from the Kenya Revenue Authority over tax evasion, including an estimated US$90 million in customs revenue lost annually. It also pointed to losses involving value-added tax and personal and corporate income taxes.
Only 16 per cent of registered firms declared and paid corporate income tax in the 2021/22 financial year, according to figures cited in the report.
The World Bank said weak governance can undermine revenue collection by encouraging tax evasion, distorting enforcement and weakening trust between taxpayers and public institutions. Businesses have also raised concerns about changes in tax policy and long delays in receiving refunds.
The lender recommended reviewing tax expenditures and removing poorly targeted or ineffective exemptions and incentives. It also called for more progressive taxation, better-targeted social assistance and protection of priority spending on health, education and services benefiting poorer households.
Greater transparency in tax exemptions, including clearer reporting on their costs and results, would help policymakers assess whether incentives are delivering meaningful economic benefits.
The report’s findings place the effectiveness and transparency of tax incentives at the centre of Kenya’s efforts to strengthen public revenue while supporting investment and economic activity.
