Micro, Small and Medium Enterprises (MSMEs) are the heartbeat of Kenya’s economy. Their entrepreneurial spirit drives job creation, innovation and inclusive growth. But despite their significant position in the economy, their overall tax contribution remains below potential.
At a recent African Development Bank Value-added tax Digitisation Seminar held in Nairobi, experts acknowledged that many MSMEs face unique challenges in meeting their tax obligations, ranging from limited resources to complex administrative processes. To support MSMEs to thrive while contributing fairly to national development, the experts emphasised that tax administrations must rethink their role, not merely as regulators, but as enablers of compliance.
One of the most impactful ways tax administration can support MSMEs is through digitalisation, not just the transformation of paper processes into digital forms, but a complete integration of tax into the natural business systems used by MSMEs.
Modern MSMEs are increasingly relying on accounting software, point-of-sale systems, and mobile-based platforms for business operations. This creates an opportunity for tax authorities to embed tax functionalities directly into these systems. For instance, when invoicing, payroll, or sales data is automatically connected to a tax system via Application Programming Interfaces (APIs), tax processes such as filing, payment, and reporting become effortless. This compliance-by-design model reduces the need for separate tax efforts, limits errors, and enhances voluntary compliance.
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Most MSMEs often lack the administrative capacity of large corporations. Complex reporting requirements and manual filing systems can be overwhelming. By automating routine processes such as registration, filing and payment through mobile apps and digital platforms, tax administrations can significantly lower the cost, both financial and time-related of tax compliance.
For example, smartphone applications such as WhatsApp can allow MSMEs to file taxes, access records, get reminders, and receive guidance all in real time. These services not only improve compliance but also create a more inclusive and supportive environment for small businesses.
The reliance on voluntary compliance poses risks when taxpayers are either unaware of their obligations or intentionally evade them. This situation creates unfair competition, particularly for compliant MSMEs, and contributes to the national tax gap. Digital systems, embedded compliance and data analytics can play a critical role in identifying patterns of non-compliance and targeting support or enforcement where needed.
This does not mean a punitive approach but rather using data smartly to guide education, outreach, and when necessary, action. It ensures a level playing field where all businesses contribute fairly.
Another key area of MSME support lies in leveraging the evolving ecosystem of tax intermediaries. The role of accountants, bookkeepers and tax consultants is changing, with many now using cloud-based tools and mobile services. Tax administrations can partner with these professionals, encouraging the use of bookkeeping software and digital solutions, which in turn simplify compliance for MSMEs.
Such cooperation can also include capacity building, joint education campaigns, and co-designed solutions that reflect the real challenges faced by MSMEs in various sectors.
The ultimate vision is a system where taxation is seamlessly embedded into everyday business activities. Just as Pay-As-You-Earn (PAYE) systems automatically deduct tax from employee salaries, tax administrations are moving towards models where sales, expenses, and financial data naturally flow into tax systems. This creates a near real-time compliance environment, one that is accurate, efficient, and far less burdensome.
At the Kenya Revenue Authority (KRA), we recognise that a supportive tax administration is critical for MSMEs’ growth and sustainability. Our initiatives, including the rollout of simplified tax regimes, the integration of eTIMS (Electronic Tax Invoice Management System), and the development of user-friendly digital platforms, are designed to align with how MSMEs actually operate.
Additionally, through the Micro and Small Taxpayers Department, we are introducing more simplified solutions such as digital chatbot service, specifically targeted at the 21–30-year-old demographic, which forms a significant portion of MSME operators. This tool will for example provide instant, tailored support, reducing the need for in-person visits and increasing accessibility of tax information and services.
Tax compliance should not be a barrier to doing business, it should be a seamless part of it. Through technology, collaboration, and a deep understanding of the MSME landscape, tax administration can shift from being a hurdle to becoming a partner in growth. At KRA’s Micro and Small Taxpayers Department, we are committed to this transformation, ensuring that MSMEs not only survive but thrive in Kenya’s formal economy.
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By George Obell