What makes a good tax regime?

Tax systems are under constant development. The process is however inconsistent since no guarantee can be given that constant change would build a better tax regime.

Administrative efficiency and simplicity: The collection and disbursement of taxes should take place with the lowest possible cost e.g. tax revenue must be collected in an efficient way. Furthermore, compliance of law should be at the lowest possible cost. Rules are well known and fairly simple, forms are not too complicated, it is easy to comply voluntarily, the state can tell if taxes are paid on time and correctly, and the state can conduct audits in a fair and efficient manner.

The cost of collecting tax should be very small in relation to the amount collected. A simple taxation can increase the equality of the system, because the taxpayer has a better chance of evaluating the effects of taxation. A complex tax system complicates the evaluation and requires more resources. The efficiency of the taxation decreases when it includes exceptions and deductions.

In Kenya the last review on income law was 40 years ago, this is not good for the country because time has changed and so is everything else. Tax systems should be predictable; this is appreciated when one is making decisions in the long run. Predictability requires continuity from tax policy, which should be taken into account in tax reforms.

Transparency means that taxpayers and leaders can easily find information about the tax system and how tax money is used.  With a transparent tax system, we know who is being taxed, how much they are paying, and what is being done with the money. The transparency and clarity of the tax system suffer, if taxation has a lot of exceptions and deductions. These reduce the tax base, in this case taxes per GNP must be increased in order to gain the same amount of tax revenue.

A good tax system can be articulated with foreign tax systems. This is marked by an extensive and functional tax treaty network and the fact that the structures of the tax systems have much in common.

It is also important to emphasize the fairness of the tax system. If the majority of taxpayers regard the tax system as unjust, the credibility of the tax system and its ability to function suffer. This means that environment related taxation must be in unison with the principles of sustainable development.