Businesses that are owed money by the government but have unpaid taxes could see those debts netted off when they are finally paid, under a plan by the Kenya Revenue Authority (KRA) to use the settlement of pending bills to recover outstanding tax.

The proposal is contained in a KRA submission to the National Assembly's Finance and National Planning Committee, reported on Sunday by Kenyans.co.ke. Listed among measures for large and medium taxpayers, it reads: "Use settlement of Government pending bills to recover outstanding tax liabilities."

How the plan would work

KRA says it will identify taxpayers who both owe it money and are owed money by ministries, departments and agencies, then use the payment process to collect what is due. To do this, the authority is:

  • Deploying technical teams to match third-party data, including from the government's Integrated Financial Management Information System (IFMIS), against tax records.
  • Reconciling withholding tax on goods supplied to government entities and corporate buyers.
  • Rolling out a system to offset approved tax refunds against outstanding liabilities.

The move builds on an earlier step in which KRA linked IFMIS to its own systems so that government payments to suppliers with mismatched tax records are flagged and held back.

Revenue gap behind the push

The taxman is under pressure to close a widening gap. In the financial year to 30 June 2026, it collected Sh2.844 trillion against a target of Sh2.977 trillion, missing by Sh132.1 billion. It has also missed its first-quarter target for 2026/27 by Sh58.2 billion, according to Business Daily.

KRA itself had pending bills of Sh5.58 billion as of 30 June, mostly Sh4.34 billion owed for excise stamps, according to the submission.

Treasury's arrears plan

Treasury puts the government's unpaid bills to businesses at about Sh175 billion, and suppliers have complained of waiting years to be paid. Capital FM reported that MPs questioned Treasury officials over the arrears, with historical bills previously estimated at Sh255 billion before about Sh80 billion was cleared.

Treasury Principal Secretary Chris Kiptoo told the committee the ministry hopes to present plans for clearing most pending bills "in the next three weeks", adding that "spending pressures are very high." Business Daily reports that Treasury Cabinet Secretary John Mbadi is expected to table the first supplementary budget for 2026/27 this month, including Cabinet-approved spending to settle pending bills of Sh50 million or less. Treasury has yet to decide whether to securitise the remaining arrears or pay them through the budget.

For many small suppliers, the news is mixed: payment may finally be in sight, but those with tax arrears could receive far less than they expect once KRA takes its share.

Photos: Kenyans.co.ke; Business Daily. Thumbnail design: HAMASTA MEDIA.