Nairobi — Kenya is making a high-stakes bet on artificial intelligence to plug one of its biggest fiscal leaks: tax evasion in the informal economy. The government believes the move could unlock more than $8.6 billion (Sh1.3 trillion) in uncollected taxes every year — money that could transform public finances and reduce the country’s growing debt burden.

Under the plan, algorithms will soon replace human officers in enforcing tax compliance, marking a dramatic shift in how Kenya manages its revenue collection. President William Ruto’s chief economic advisor, Dr. David Ndii, says the new system will rely heavily on data drawn from Kenya’s thriving digital finance ecosystem, led by platforms like M-Pesa and Airtel Money.

“In a year or two, most of our taxes will be collected by algorithms and not by people,” Dr. Ndii said during the launch of NCBA’s Economic Forum in Nairobi. “We are not planning to collect taxes the old way. We are going to collect taxes by algorithms.”

Digital Tools for a Digital Economy

The informal sector — from boda boda riders and food vendors to small-scale traders — accounts for more than 80% of Kenya’s employment but contributes only a fraction of total tax revenue. The challenge, officials say, has always been visibility: how to trace income that never passes through formal systems.

With nearly every adult Kenyan now transacting through mobile money, the government sees a new opportunity. AI-powered tools will analyze spending patterns, transaction histories, and cash flows across digital platforms to detect taxable income that currently slips through the cracks.

“Those in informal jobs live in the same neighborhoods, drive similar cars, and send their children to the same schools as those in formal employment. The only difference is that they file nil returns,” Ndii observed. “Technology is going to help us correct this anomaly that denies the country over Sh1.28 trillion every year.”

The Kenya Revenue Authority’s Next Evolution

As machines take on more operational roles, the Kenya Revenue Authority (KRA) is preparing for a cultural transformation. The agency, once known for its enforcement-heavy approach, is rebranding itself as a data-driven service body.

KRA is also in the process of recruiting 10,000 new field agents across the country. Modeled after telecom service representatives, these agents will help citizens register as taxpayers, file returns, and make digital payments without costly intermediaries.

The agency has already taken steps toward digitization with the creation of the Micro and Small Taxpayers (MST) Department, led by Commissioner George Obell, to serve small businesses with tailored tax solutions. Still, Kenya continues to miss its revenue targets. The latest Budget Review and Outlook Paper shows that KRA collected Sh1.093 trillion ($7.2 billion) in income tax last year against a target of Sh1.125 trillion ($7.4 billion).

Rethinking the VAT System

Kenya’s AI ambitions go beyond income tax. The government is also reimagining the Value Added Tax (VAT) model to benefit consumers directly.

“Currently, VAT benefits manufacturers with the expectation that they will pass savings to consumers. That creates a refund system which is very problematic,” Ndii explained. “Technology will now allow us to give VAT refunds directly to consumers. But for us to give you a tax credit, you must first be a taxpayer.”

A Model for the Continent

Kenya’s experiment could have continental implications. Across Africa, informal economies make up between 30% and 60% of GDP, according to the African Development Bank, costing governments billions in lost taxes each year.

If Kenya’s system succeeds, it could offer a blueprint for digital tax reform across Africa — a way for governments to expand their tax base without punishing formal workers or taking on more debt.

By turning to artificial intelligence, Kenya is positioning itself as a trailblazer in fiscal technology, using innovation to solve one of the oldest challenges in governance: how to make everyone pay their fair share.