The Kenyan Tax Question: Is The Issue A TAX Collection By KRA Or Revenue Spending By The Government?

The narrative that SMEs are not paying taxes is tired, reckless, and irresponsible. The only tax that is difficult to implement for the SME category is PAYE, largely because employees in this category mostly fall below the minimum tax bracket. All the other taxes are paid by SMEs, even Mama Mboga pays.

What we need to appreciate is that the majority of the SMEs are always dying every day and since COVID-19, SMEs are struggling to meet the basic of their needs to remain operational and this is something that the government and parliament have refused to acknowledge.

I believe before we point fingers and accuse so and so of not paying taxes, we need to have a sober conversation on what are the challenges Kenya is facing in regard to tax collection. Is the issue about tax collection or revenue spending by the government?

The Kenyan Context;

Kenya, like many other developing countries, faces numerous challenges in its efforts to generate sufficient revenue to fund its development agenda. However, the key question is whether Kenya’s challenge is a problem of tax collection or revenue spending by the government.

The Kenyan government has a history of implementing various tax policies to increase revenue collection. These policies include the introduction of Value Added Tax (VAT) on previously exempt goods and services, increasing excise duty on cigarettes and alcohol, and expanding the tax base by reducing the minimum threshold for income tax. Despite these measures, the government has not been able to meet its revenue collection targets, which indicates that tax collection is a significant challenge in Kenya.

On the other hand, the Kenyan government has been criticized for its inefficient revenue spending practices. A significant portion of the budget goes towards recurrent expenditures, such as salaries and allowances for public officials, leaving minimal resources for development projects. Additionally, corruption and mismanagement of public funds have been widespread in Kenya, leading to the loss of significant amounts of revenue that could have been used for development. Therefore, revenue spending is also a problem that affects Kenya’s development agenda.

Another factor that impacts Kenya’s revenue collection is the informal economy, which accounts for a significant portion of the country’s economic activity. Many businesses in the informal sector operate outside the tax system, making it challenging for the government to collect taxes from them. While the government has attempted to formalize this sector, it has not been successful due to various challenges, including a lack of resources and inadequate infrastructure.

Finally, Kenya’s tax policies and revenue collection systems may not be aligned with the needs of its citizens. Many Kenyans argue that taxes are too high and that the revenue collected is not spent on projects that benefit the majority of the population. This sentiment has led to widespread tax evasion and avoidance, further reducing the government’s revenue collection capacity.

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The Challenges that Need Proper & Sober Conversations with Parliament;

I believe before we can say that we must increase our taxes and broaden the tax base, we must look at the top issues that create the challenges that we face as a country and how best to address these challenges and align them to the needs of the citizens who are the taxpayers. It is true, no one has a God-given right to tax anyone to death. This means that our needs as Kenyans must be aligned with the tax obligations of the country and this is the sole role of Parliament to ensure the alignment is done and the public is protected. But is this the case? I had the opportunity to talk to several Kenyans and below are the top 20 issues that they believe if addressed in a sober and considerate manner, Kenya can achieve its developmental goals from its tax collection alone.

These are;

1. Limited tax base: Kenya has a relatively small tax base, with only a small percentage of the population and businesses contributing to tax revenue.
2. High informality: A significant proportion of the Kenyan economy is informal, which makes it difficult to track and tax economic activities.
3. Tax evasion and avoidance: Tax evasion and avoidance are major challenges in Kenya, with some taxpayers engaging in illegal practices to avoid paying taxes.
4. Corruption: Corruption is a significant issue in Kenya, and this has a direct impact on the effectiveness of the tax system.
5. Weak & Corrupt tax administration: The tax administration in Kenya is weak and corrupt with a limited number of tax officials, inadequate training, and poor IT infrastructure.
6. Inefficient tax collection: The tax collection process in Kenya is inefficient, with lengthy procedures and a lack of modern technology.
7. Limited tax revenues: Despite efforts to increase tax collection, Kenya still faces a significant gap between its tax revenues and its expenditure needs.
8. High debt levels: Kenya’s debt levels are high, and this puts pressure on the government to increase tax revenue to meet its debt obligations.
9. Unequal tax burden: The tax burden in Kenya is unequally distributed, with low-income earners paying a higher percentage of their income in taxes than high-income earners.
10. Lack of taxpayer education: There is a lack of taxpayer education in Kenya, with many taxpayers unaware of their rights and obligations.
11. Complex tax laws: The tax laws in Kenya are complex, and this makes it difficult for taxpayers to understand their obligations.
12. Limited use of technology: Kenya has been slow to adopt modern technology in tax administration, and this has limited its ability to increase tax collection and improve efficiency.
13. Limited resources for tax administration: The government of Kenya has limited resources to invest in tax administration, which has limited its ability to improve the effectiveness of the tax system.
14. Political interference: Political interference in tax administration is a significant challenge in Kenya, with politicians sometimes using tax laws to further their own interests.
15. Lack of transparency: There is a lack of transparency in the tax system in Kenya, with taxpayers often unaware of how their tax money is being used.
16. Weak legal framework: The legal framework for tax administration in Kenya is weak, and this limits the government’s ability to enforce tax laws.
17. Limited cooperation with other countries: Kenya has limited cooperation with other countries in tax administration, which makes it difficult to track cross-border transactions.
18. Limited resources for tax collection: The government of Kenya has limited resources to invest in tax collection, which has limited its ability to increase tax revenue.
19. Limited use of data analytics: Kenya has been slow to adopt data analytics in tax administration, which has limited its ability to identify tax evaders and improve tax collection.
20. Limited capacity for tax policy development: Kenya has limited capacity for tax policy development, which has limited its ability to develop and implement effective tax policies.

In conclusion, both tax collection and revenue spending are significant challenges that affect Kenya’s development agenda. The government needs to address inefficiencies in both areas to generate sufficient revenue to fund development projects. This will require comprehensive reforms in tax policies, revenue collection systems, and revenue spending practices. Additionally, addressing corruption and mismanagement of public funds is critical in ensuring that the revenue collected is used effectively and efficiently for the benefit of all Kenyans.

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