REVENUE CONSEQUENCES OF VAT MISREPORTING IN KENYA
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Date
2026
Authors
Clement Otindo
Jane Muguchu
Bjørn Bo Sørensen
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
This paper studies the evolution of Valued Added Tax (VAT) misreporting in Kenya during a period of sustained administrative reform using firm-to-firm transaction data from 2016 to 2023. We document widespread underreporting of VAT liabilities, especially on the extensive margin, as well as a sharp decline in this behaviour over time. Using a fixed-effects regression model that allocates reporting discrepancies to either buyers or sellers, we show how systematic misreporting varies across firm size, sectors, and tax offices. Eliminating firms’ misreporting may have increased Kenya Revenue Authority’s (KRA) tax revenue by up to KSH 648 billion (42% of VAT payable). The negative revenue impact has decreased significantly over time, highlighting improvements in KRA’s tax capacity during a period of sustained reform.