KRA Tightens VAT Checks as Fake Invoice Fraud Threatens Tax Revenue

The Kenya Revenue Authority (KRA) is tightening checks on businesses seeking Value Added Tax registration, warning that some firms are allegedly setting themselves up to help other taxpayers reduce their tax bills through fraudulent transactions.

The move puts businesses seeking VAT registration under closer scrutiny, particularly those whose operations, ownership or commercial activities cannot be easily verified.

But KRA says it does not want the tighter checks to become another hurdle for legitimate businesses. Established firms whose operations can be confirmed should find it easier to register, while applications raising red flags will face additional scrutiny.

Speaking during a stakeholder engagement in Machakos, Commissioner for Micro and Small Taxpayers George Obell said the authority had listened to complaints about delays and was reviewing the registration process.

“We have got this feedback from the taxpayers that it takes a long time, and so we have looked at that process to try and make it fairly easier, especially for established businesses,” Obell said.

He explained that applications from businesses whose activities could not be verified would take longer because of the need for further checks.

“The ones that will take more time are the businesses that we are not sure about, but the ones we are sure about, we are making them easier to be able to get VAT registration and follow up so that you can comply,” he added.

Why KRA is concerned about VAT registration

VAT registration allows qualifying businesses to charge Value Added Tax on taxable supplies and claim eligible input VAT on purchases made for their businesses.

That system can be abused when companies issue or use invoices for transactions that never took place. A business may then use the paperwork to claim tax credits it is not entitled to, reducing the amount it owes the government.

KRA is concerned that some businesses are seeking registration not because they have genuine taxable operations, but to facilitate such arrangements for other firms.

The problem is not limited to registration. It also involves the creation and circulation of fictitious electronic tax invoices, which can make transactions appear legitimate in tax records.

In a separate recent investigation, the Kenya News Agency reported that KRA had uncovered an alleged KSh4 billion VAT fraud scheme involving fictitious invoices. The authority said six suspects had been arrested and were expected to face charges. The case illustrates why the taxman is focusing on the businesses and systems used to generate questionable invoices.

KRA has also been increasing its use of electronic records and data analysis to compare invoices with other business information. In January 2026, Business Daily reported that the authority was exploring location-linked eTIMS invoices to help identify transactions that did not match the businesses issuing them.

Genuine businesses should not be caught in the net

For small and medium-sized enterprises, the distinction between risk-based checks and unnecessary delays will be important.

KRA's position is that businesses with verifiable operations should not have to wait as long as those whose applications raise concerns.

Under the VAT Act, a business making or expecting to make taxable supplies worth at least KSh5 million in a 12-month period is generally required to register. Businesses below that threshold may apply for voluntary registration, subject to conditions set by the law.

VAT registration also brings ongoing responsibilities. Registered businesses must charge VAT where applicable, submit returns and maintain proper records. They are also required to use KRA's electronic tax invoicing system, eTIMS.

The authority's challenge is to identify companies created to facilitate fraudulent claims without making it unnecessarily difficult for genuine businesses to meet their obligations.

KRA chairman calls for better taxpayer education

KRA Board Chairman Ndiritu Muriithi urged businesses to understand their tax responsibilities, saying some compliance failures stem from taxpayers not knowing what the law requires of them.

He described taxpayer education as central to improving compliance, arguing that businesses need to understand their obligations rather than only encounter the authority when enforcement action is taken.

The message comes as KRA seeks to widen compliance while addressing concerns from businesses about the cost and complexity of meeting tax requirements.

What penalties could businesses face?

The consequences depend on the nature of the offence and the legal provision applied.

Section 85 of the Tax Procedures Act provides for a penalty equal to twice the tax that would have been avoided where the Commissioner applies a tax-avoidance provision to a scheme designed to avoid tax.

Other provisions cover false statements, tax shortfalls and fraudulent refund claims. The penalties are not identical, and the double-tax penalty should not be treated as an automatic sanction for every form of tax evasion.

KRA has urged taxpayers to avoid participating in arrangements involving fictitious invoices or unsupported input VAT claims.

For businesses, the latest warning is a reminder that VAT registration is not simply an administrative step. It carries obligations to keep genuine transaction records and ensure that claims made in tax returns can be supported.

The authority now faces the task of enforcing those rules while making the registration process more predictable for businesses that are trying to comply.

About the Author

Maureen Onyango is a journalist passionate about storytelling, life coaching and spiritual lessons. She studied at the Kenya Institute of Management and enjoys telling stories that inform, inspire and empower communities.