Tax Discipline Must Begin In The Boardroom & Tax Predictability Must Begin In Government

Tax planning begins with governance. That sentence sounds simple, but for thousands of growing Kenyan businesses it is the difference between a manageable tax position and a crisis that appears to come from nowhere. One of the largest sources of tax exposure in an SME is often not deliberate fraud. It is weak governance: a founder paying a personal bill from the company account, directors approving expenses verbally, allowances being paid without a written policy, family members using company assets casually, reimbursements arriving without supporting documents, or management making decisions that nobody records because everybody in the room already knows what was agreed.

In the early years of a business, this can feel efficient. The founder is the shareholder, the director, the salesperson, the emergency financier and sometimes the person who locks the office at night. Money moves quickly because the business is fighting to survive. But as turnover grows, staff numbers increase, bank facilities become larger and KRA scrutiny becomes more sophisticated, yesterday’s informal habits become today’s tax questions. Was that payment a deductible business expense, a director’s loan, a taxable benefit, a dividend, undeclared income or simply an undocumented transaction? When the paperwork is weak, the answer is no longer entirely in the hands of the business.

That is why a tax-ready business must build governance before it builds clever tax structures. Shareholders, directors and management should know where their responsibilities begin and end. Expense, reimbursement, travel, per diem, bonus and benefit policies should exist in writing. Approval limits should be defined. Working-capital controls should be visible. Payroll benefits should have a tax treatment before they are paid, not six months later when an accountant is trying to reconstruct what happened. Personal and business transactions should be separated ruthlessly. If a director borrows from the company, record it. If the founder injects cash, record it. If the company pays for something private, identify it immediately and treat it correctly.

Good governance is not bureaucracy for its own sake. It is a form of insurance. It protects deductibility. It protects directors from allegations that company funds are personal funds. It gives auditors, banks and tax advisers reliable information. It improves the credibility of management accounts. Most importantly, it prevents the business from discovering years later that a casual internal practice has accumulated into an enormous tax exposure made worse by interest, penalties, disputes and legal costs.

But there is another side to this conversation, and I believe the Government must hear it just as clearly. Business discipline cannot compensate for public-policy instability. We can ask entrepreneurs to maintain proper books, follow tax calendars, document every benefit and separate every shilling properly — and we should. But Government must also accept that businesses make decisions over horizons much longer than twelve months. A machine may be financed over five years. A warehouse lease may run for six. A bank loan may mature after three or seven. A long-term supply contract may be priced today on assumptions that determine whether the company survives two years from now. Tax policy therefore cannot continue to behave as though every business decision resets on 1 July.

This is the heart of the petition I have presented to the Senator of Nairobi, Edwin Sifuna: Kenya needs to move away from a culture of major annual tax changes and establish a Five-Year National Tax Stability Framework. I am not arguing that taxes should never change. I am not arguing that Government should stop budgeting annually. I am arguing that core tax rates, tax bases, thresholds and major business-tax rules should be settled for a meaningful planning cycle, with tightly defined exceptions for genuine emergencies, court decisions, treaty obligations and serious anti-avoidance measures.

Kenya’s own legal and policy framework already points in this direction. The Public Finance Management Act requires the annual Finance Bill process, but it also says revenue decisions should take account of certainty and their impact on development, investment, employment and economic growth. The National Tax Policy recognises predictability as important to the investment environment. The principle is therefore not radical. What is missing is a practical architecture that makes predictability the normal rule instead of a good intention that disappears every Budget season.

For an SME, annual tax churn is not an academic inconvenience. It affects bankability. A lender examining a three- or five-year facility wants to understand future cash flow and debt-service capacity. If material tax assumptions can change every year, another unknown has to be priced into the credit decision. That can translate into a smaller facility, more collateral, a higher risk premium or no loan at all. The weighted average commercial-bank lending rate was already 14.39 per cent in July 2026. At that price of money, uncertainty is not free.

It also affects investment. A manufacturer deciding whether to buy a filling line, packaging machine, truck or generator must model the after-tax economics of that asset. VAT treatment, import-related charges, capital allowances, excise exposure, electricity, labour, finance costs and demand all sit inside that calculation. If the tax assumptions are unstable, the hurdle rate rises. The rational response is often not to invest. It is to wait. And when thousands of businesses wait at the same time, the country experiences that hesitation as fewer orders, fewer factories, fewer permanent jobs and less formal economic activity.

This matters because Kenya’s employment challenge is not going to be solved by the public service absorbing everyone looking for work. The 2026 Economic Survey reported that wage employment grew by only 2.8 per cent in 2025 while informal-sector employment expanded much faster, to roughly 18.1 million people. That is a warning. We are creating activity, but too much of it remains fragile, informal and difficult to finance. The people capable of turning informal work into formal payrolls are businesses. If we want more formal jobs, we must make it easier for a small enterprise to become a medium enterprise and for a medium enterprise to become a serious employer.

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This is why tax predictability should be understood as economic infrastructure. We build roads because goods must move. We stabilise power because machines must run. We regulate banks because credit must flow. In exactly the same way, we need a tax environment stable enough for an entrepreneur to sign a five-year facility, employ twenty more people, enter a long-term lease, import machinery or commit capital without wondering whether the basic economics of that decision will be rewritten in the next Finance Act.

A five-year framework should not mean five years of Government silence. It should mean five years of Government discipline. Before the cycle starts, Treasury should publish a clear tax map showing core rates, bases, thresholds, major investment allowances, important exemptions and any pre-announced indexation rules. Annual Finance Bills should remain, but their role should narrow toward implementation, correction of anomalies, administration, court decisions, treaty obligations and demonstrable emergencies. Material adverse changes should ordinarily come with sufficient notice — I have proposed at least 180 days — so that businesses are not informed in June that a major operating assumption changes in July.

There should also be transition rules. If a business has signed a long-term contract, financed a project or committed capital on the basis of an existing tax rule, an abrupt change can create a loss that has nothing to do with poor management. Reasonable grandfathering and transition arrangements are not business gifts; they are how serious jurisdictions preserve confidence in the rule-making process. Emergency changes should also expire unless Parliament deliberately renews them. Otherwise every exception becomes permanent and the five-year framework becomes meaningless.

I have also argued that the current 2026 tax-amnesty recovery window should be extended beyond 31 December 2026. This point is important because many businesses are not refusing to pay tax; they are trapped in a cash-flow arithmetic that has become impossible. They owe KRA, but they also owe staff, suppliers, landlords, banks and current taxes. A six-month window may look generous from the perspective of a statute, but for a distressed SME it can be too short to clear principal arrears without destroying the very enterprise from which the tax is supposed to be collected.

An extended amnesty should not become an escape route for deliberate evasion. It should be conditional. Principal tax must still be paid. The business should remain current on new obligations. There should be documented payment plans, clear defaults and safeguards against fraud. But the objective should be recovery, not ceremonial compliance followed by liquidation. A viable business that returns to full compliance, retains its workers, pays suppliers and continues producing is more valuable to the Exchequer than a closed business with an impressive tax demand attached to an empty office.

The business community, however, must not wait for Parliament to fix everything. We have work to do inside our own companies. The first responsibility is to stop treating tax as an annual event handled by the accountant when a deadline arrives. Tax should sit inside monthly management. Every serious SME should know its tax calendar, its outstanding liabilities, its VAT and withholding position, the tax treatment of staff benefits, its director and shareholder balances, and the documentary support behind major expenses. If management cannot answer those questions without panic, the business is not tax-ready.

Second, boards and founders must end the casual mixing of company and personal finances. A company is not a wallet with a certificate of incorporation. It is a separate legal and accounting entity. Personal school fees, holidays, household purchases, private vehicles, family support and lifestyle expenses should not be hidden inside business costs and then defended after the fact. When legitimate private use of company resources occurs, it should be recorded and treated correctly. The discipline may feel inconvenient today, but it is cheaper than trying to explain five years of blurred transactions during an audit.

Third, SMEs need written policies earlier than they think. You do not need a fifty-page manual to govern a ten-person company. You need clear rules. Who can approve expenditure? Which expenses are reimbursable? What supporting documents are mandatory? How are per diems calculated? Which staff benefits are taxable? Who approves bonuses? How are director loans handled? What happens when a receipt is missing? What requires board approval? The absence of policy transfers decision-making from management to hindsight, and hindsight is where tax disputes thrive.

Fourth, businesses must build stronger records and stronger systems. Cloud accounting, eTIMS integration, payroll controls, inventory records, bank reconciliations and monthly management accounts should not be viewed as costs imposed by compliance. They are the information system of the enterprise. A business that understands its numbers negotiates better with banks, notices leakage earlier, prices more accurately, detects fraud sooner and responds to KRA with evidence rather than explanations.

Fifth, the private sector must stop engaging tax policy only after a Finance Bill has already been published. Business associations, manufacturers, professional bodies, sector groups and individual entrepreneurs need permanent tax-policy desks that collect evidence throughout the year. We should be able to tell Parliament not only that a proposal is painful, but exactly how it affects working capital, pricing, employment, investment and compliance cost. If a levy will make a product uncompetitive, model it. If a withholding rule locks up cash for six months, quantify it. If a tax change will prevent a planned investment, document the investment and the jobs at risk. Evidence is harder to dismiss than anger.

Sixth, we need a stronger culture of collective advocacy. Too many entrepreneurs complain privately and comply publicly with policies they believe are damaging, then hope somebody else will speak. A functioning business community must make principled submissions, attend public participation forums, appear before parliamentary committees, engage Treasury, share anonymised sector data and insist that every material tax proposal comes with an SME, employment and investment impact assessment. Policy is shaped by those who show up with facts.

Seventh, businesses in arrears should use any amnesty or settlement mechanism as a restructuring opportunity, not merely as a temporary pause. Reconcile the ledger. Confirm the principal. Dispute what is genuinely wrong. Agree a realistic payment plan. Ring-fence current taxes so new arrears do not replace old ones. Cut leakage. Renegotiate expensive liabilities where possible. Speak to lenders with a documented recovery plan. The objective is to emerge from amnesty healthier, not simply to survive until the next enforcement letter.

And finally, we must stop asking for a tax regime that is simply ‘friendly’ to business. That language is too weak. Kenya needs a tax regime that is credible, governable and predictable. Businesses should pay what Parliament lawfully imposes. KRA should enforce fairly and consistently. Government should design taxes with evidence. Parliament should resist the temptation to rebuild the tax system every year. And businesses should have enough certainty to make long-term decisions without pricing political and fiscal surprise into every investment.

There is a social contract hidden inside every tax payment. The taxpayer accepts an obligation to contribute. The State accepts an obligation to make the rules lawful, clear, proportionate and sufficiently stable for citizens and enterprises to organise their affairs. When either side abandons discipline, trust deteriorates. Weak business governance creates exposure and evasion. Weak tax governance creates uncertainty, informality and capital flight. Kenya needs to fix both.

My position is therefore straightforward. Let businesses begin by cleaning their own houses: stronger boards, written policies, documented approvals, proper books, tax calendars, clean separation of personal and company transactions, and honest engagement with arrears. Then let Government meet that discipline with discipline of its own: a five-year tax-stability framework, meaningful notice before material changes, proper transition rules, evidence-based impact assessments and a longer, conditional recovery window for distressed but viable taxpayers.

That is not a demand for special treatment. It is a blueprint for a mature tax economy. The prize is bigger than lower compliance anxiety. It is better bankability, more investment, stronger formalisation, more resilient SMEs, a broader tax base and, ultimately, more jobs. Kenya will not tax its way into prosperity by making uncertainty an annual tradition. Prosperity will come when businesses can plan, invest, employ and grow — and when Government can collect revenue from enterprises that are alive, expanding and confident enough to remain here for the long term.

THE BUSINESS COMMUNITY’S IMMEDIATE AGENDA

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