Kenya needs a tax regime that grows business, not one that punishes it

The protests by hundreds of small-scale traders in Nairobi’s Central Business District yesterday, Friday, August 28, 2026, should not be dismissed as another episode of street demonstrations. They are a warning signal about the growing frustration within Kenya’s business community over the cost of doing business and the manner in which tax and customs policies are being implemented.

From Kamukunji to Gikomba and Nyamakima, traders took to the streets to protest the Kenya Revenue Authority’s (KRA) revised Customs Minimum Benchmark for consolidated cargo, which raised the minimum valuation of a 40-foot container of consolidated general cargo from Sh2.5 million to Sh3.2 million.

That represents a Sh700,000 increase per container, or about 28 per cent.

For a large multinational company with substantial financial reserves, such an adjustment may be manageable. For a small importer operating on thin margins, it can make the difference between remaining in business and shutting down.

This is precisely why Kenya needs to rethink the philosophy underpinning its taxation and customs administration.

Taxes should finance government, but taxation must not destroy the very businesses that generate employment, investment and taxable income.

A government that relentlessly increases the cost of doing business risks creating a vicious cycle.

Businesses reduce investment. Consumers face higher prices. Enterprises cut jobs or close. Imports shift to informal channels. Tax compliance deteriorates. Government revenues eventually suffer.

The objective of tax policy should therefore not simply be to extract the maximum amount of revenue from businesses today. It should be to create an environment in which businesses can survive, expand, employ more people and pay taxes consistently over the long term.

Kenya’s small and medium-sized enterprises are particularly vulnerable. Thousands of traders depend on imported clothing, electronics, household goods and other merchandise to sustain their businesses. Many operate with limited working capital and cannot absorb sudden increases in customs costs.

When their costs rise, they have only a few options: increase prices, reduce their profit margins, cut staff or abandon the business altogether.

The consequences ultimately extend beyond the trader.

The consumer pays more. The worker risks losing employment. The landlord loses a tenant. Transporters lose business. Banks and suppliers lose customers. And the Treasury potentially loses future tax revenue.

This is why the debate surrounding the new customs benchmark should not be reduced to whether KRA is legally entitled to introduce it.

The bigger question is whether the policy is economically sensible and supportive of enterprise.

KRA’s clarification that the Sh3.2 million figure is a minimum reference point for simplified customs clearance and risk management, rather than a flat tax imposed on every shipment, is important. The authority has also said traders can de-consolidate cargo and pay duties based on actual itemised declarations.

But policymakers must confront the reality facing micro-importers.

A policy can be technically sound on paper and still be commercially impractical.

For a large importer with sophisticated accounting systems, professional customs agents and extensive documentation, itemised declarations may be routine. For a small trader who pools resources with other traders to bring in a consolidated shipment, the process can be costly, complicated and time-consuming.

This is where government policy must move beyond the question of what is legally possible to what is economically workable.

Kenya needs a tax regime that encourages formalisation rather than pushing businesses into informality.

It needs customs procedures that are predictable, transparent and proportionate to the size of the enterprise.

It needs a tax administration that sees the private sector as a partner in national development rather than simply a source of revenue.

Most importantly, the government must recognise that ease of doing business is not a favour to businesses. It is an economic strategy.

A thriving private sector creates jobs, generates innovation, expands the tax base and reduces pressure on government to provide employment.

That is why the current situation also raises serious questions about the role of business lobby groups.

Organisations such as the Kenya National Chamber of Commerce and Industry (KNCCI), Kenya Private Sector Alliance (KEPSA) and Kenya Association of Manufacturers (KAM) have an important responsibility to speak for the business community.

Their role cannot be limited to attending government forums, participating in conferences, signing memoranda and issuing carefully worded statements after businesses have already been harmed.

They must be proactive.

They must identify potentially damaging policies before they are implemented and engage government early enough to influence their design.

They must challenge policies that undermine competitiveness.

They must demand proper impact assessments before major tax and regulatory changes are introduced.

And when the interests of their members conflict with government policy, they must have the courage to say so.

There is a danger that business associations can become too comfortable with government. When that happens, they risk becoming extensions of the state rather than effective advocates for the private sector.

That would be a betrayal of the businesses they represent.

The traders demonstrating in Nairobi are not asking to be exempted from taxation. They are asking for a system they believe they can afford and understand.

There is an important distinction.

Kenya needs compliant businesses, not desperate businesses.

The best tax system is not necessarily the one with the highest rates or the most aggressive enforcement mechanisms. It is one that businesses understand, can reasonably comply with and can incorporate into their financial planning.

Government should therefore urgently convene KRA, the National Treasury, customs agents, traders and business associations to review the implementation of the new consolidated cargo benchmark.

Such engagement should not be cosmetic. It should examine the actual impact of the policy on small importers, consumer prices, employment, competitiveness and tax compliance.

The government should also consider differentiated approaches that recognise the realities of micro, small, medium and large enterprises.

At the same time, business associations must stop waiting for crises before mobilising.

KNCCI, KEPSA and KAM should be permanent watchdogs for the business environment. They should regularly publish policy impact assessments, maintain direct feedback mechanisms with businesses and publicly identify regulations that increase the cost of doing business without a commensurate economic benefit.

The private sector needs champions, not spectators.

Kenya cannot tax its way into prosperity. It must grow its way into prosperity.

A wider and more productive tax base will ultimately generate more sustainable revenue than a narrow tax base squeezed through increasingly burdensome measures.

The lesson from the Nairobi protests should therefore be clear that the businesses are not the enemy of government revenue. They are the engine that produces it.

Government must create a tax and regulatory environment in which a trader in Kamukunji can grow into an importer, an importer can become a distributor, a distributor can establish a manufacturing operation and a small enterprise can eventually employ hundreds of Kenyans.

That is how economies develop.

The alternative is a punitive tax regime that drives businesses out of the formal economy, raises consumer prices, discourages investment and ultimately shrinks the tax base.

Kenya should choose growth over punishment, partnership over confrontation and consultation over unilateralism.

The private sector does not need a government that looks the other way when businesses evade taxes. Neither does it need a government that treats every entrepreneur as a potential tax offender.

It needs a government that understands a simple economic truth:

When businesses thrive, Kenya thrives. When businesses are suffocated, everyone pays the price.