Makali Mulu warns of shrinking tax base as informal sector outpaces formal economy
By Mustafa Juma, July 18, 2025Kitui Central Member of Parliament (MP) Makali Mulu has raised concerns over Kenya’s shifting economic landscape.
Speaking on the night of Thursday, July 17, 2025, during an interview with a local TV station, the Wiper party lawmaker warned that the country risks losing a significant portion of its income tax revenue due to the stagnation of the formal sector and the rapid expansion of the informal economy.
Mulu further noted that while the informal sector continues to absorb the bulk of job seekers, it remains largely outside the reach of the taxman.
Proper structures
He also suggested that the country needs to come up with structures that can help grow the formal sector.
“When you see the formal sector is not growing and the informal sector is growing, it means that as time goes on, the government will have to keep on collecting less revenue in terms of income tax because they won’t be able to capture the informal sector. This is the challenge, so it is important we come up with structures where we can grow the formal sector,” he said.
Dr. Mulu emphasised the importance of policy reform to stimulate growth in the formal sector while designing inclusive models for the informal economy.
The MP’s remarks come at a time when the Kenya Revenue Authority (KRA) is facing increasing pressure to meet ambitious revenue targets amidst a tough economic environment.
Govt revenue contributors
Despite growth in other tax categories like VAT and excise duty, income tax remains a key contributor to government revenue, especially for funding essential services such as health, education, and infrastructure.
Kenya’s informal sector—which includes small-scale traders, artisans, boda boda operators, hawkers, and micro-enterprises—currently accounts for over 80% of employment in the country.
However, due to the nature of these enterprises, most are unregistered, unregulated, and untaxed.