Investment

Fueling The Economy’s Engine: The Revenue Authority’s Impact

BY Stellar Swakei · October 13, 2023 02:10 pm

Taxation is a fundamental component of a functioning economy, enabling governments to raise funds, promote economic stability, address income inequality, and provide essential public services. To be precise, taxation is a primary source of government funding as it contributes more than 95% of the revenues.

The funds collected through taxes are used to finance government operations, public services, debt repayments, and infrastructure development. This revenue is essential for the government to fulfill its responsibilities, such as education, healthcare, defense, and public safety.

In addition, progressive taxation systems are intended to minimize income inequality by obligating higher-income persons to pay a larger share of their income in taxes. Taxation assists in resolving economic disparities and promotes social fairness by distributing wealth from the rich to the poor.

Overall, the Kenya Revenue Authority (KRA) plays a critical role in promoting the functionality of the government by ensuring that necessary revenue is collected to fund public services while enforcing tax laws and regulations to maintain a fair and transparent tax system.

The primary role of KRA is to collect taxes, including income tax, corporate tax, value-added tax (VAT), excise taxes, customs duties, property taxes, and various other levies.

In that case, the Kenya Revenue Authority (KRA) has undertaken several initiatives to enhance its effectiveness in revenue collection, tax administration, and overall operations. These measures are aimed at improving efficiency, reducing tax evasion, and boosting compliance.

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As such, the authority has managed to ensure that actual revenues closely track the targets. Over the last five years, revenues have grown by 37.1% to KES 2.2 tn in FY2022/23, from KES 1.6 tn in FY2018/19, as shown in the chart below:

KRA

Overtime, KRA has persistently and notably boosted its revenue collection capabilities through various ways including;

Modernization and Digitization – KRA has invested in modern information technology and digital solutions to streamline tax processes, reduce compliance costs, and enhance the taxpayer experience. This includes the implementation of online tax filing, payment systems, and electronic tax returns,
Taxpayer Education and Sensitization – KRA conducts taxpayer education and awareness campaigns to inform taxpayers about their obligations and rights. The authority also issues step-by-step guidelines on various tax processes through online publications and videos aimed at increasing client awareness. These initiatives aim to enhance voluntary compliance and reduce tax evasion,
Enhanced Monitoring – KRA implemented ETIMS (Electronic Tax Invoice Monitoring System), an electronic tax invoicing system to enhance tax compliance, reduce tax evasion, and improve the efficiency of tax collection processes. ETIMS focuses on monitoring and tracking the issuance of electronic tax invoices by registered taxpayers in Kenya,
Transparency and Accountability – KRA has maintained its commitment to transparency and publishes reports on its activities, revenue collection, and compliance efforts to promote accountability,
Compliance and Enforcement – KRA has increased enforcement activities, such as border controls to prevent smuggling, and introduced stringent measures against tax evaders and non-compliant businesses. ETIMS also makes tax compliance easier for businesses and individuals while improving KRA’s ability to monitor and verify tax transactions. The system helps to strengthen Kenya’s tax collection and administration capabilities,
Taxpayer Services Centers – as one of the most recent initiatives, KRA has established taxpayer service centers and service points in various locations to provide assistance and support to taxpayers, making it easier for individuals and businesses to meet their tax obligations.

As a result, KRA has managed to support government expenditure by providing more than 50% of the funding. If it were not for debt servicing obligations, the revenues would be just enough to cover the country’s expenditure.

See the chart below for a visual representation;

In conclusion, KRA’s impact is far-reaching, encompassing various dimensions of Kenya’s socioeconomic landscape. The revenue it collects forms the financial backbone of the nation, financing critical public services, infrastructure, and government operations. The authority’s ability to consistently meet or exceed revenue targets reflects its positive impact on the national economy.

The authority stands as a significant player in fostering economic stability, reducing tax evasion, and ensuring that Kenya’s finances are on a solid footing for the benefit of all its citizens. In addition, its initiatives to foster taxpayer education and support SMEs directly impact economic growth, while its digitalization efforts have simplified the lives of taxpayers and enhanced the efficiency of tax administration.