This archive report was first published on 10 June 2020.
On June 10, 2020, the world was in the midst of the COVID-19 pandemic, a crisis that threatened not only human health but also the economy.
Commentators described the situation as a war with an invisible enemy, requiring mobilization of resources and a sophisticated approach to combat it.
History shows that major wars often trigger increased tax rates, with citizens endorsing the war effort and accepting higher taxes.
However, the COVID-19 pandemic was different, as civilians, including taxpayers, were directly affected by lockdowns, salary cuts, and job losses.
As a result, policymakers found themselves between a rock and a hard place, deciding whether to raise taxes to manage the pandemic or reduce them to cushion the masses.
Reducing tax rates was a wise decision, at least in the short term, to keep the economy afloat.
Immediate tax relief was enjoyed by salaried individuals after the revision of tax rates, while shoppers benefited from a reduction in Value Added Tax (VAT) from 16% to 14%.
Small businesses with a turnover of less than Sh50 million were also beneficiaries, being taxed at 1%.
However, the marginal changes to tax rates resulted in a huge revenue shortfall for the government, with the Kenya Revenue Authority (KRA) losing Sh1.3 billion daily.
The International Monetary Fund (IMF) urged Kenya to reverse the corona tax cuts, citing a loan facility of Sh78.9 billion.
As the country debates whether to increase taxes again or reduce them further, the focus should be on tax compliance, particularly in the informal sector.
Addressing the fundamental question of why taxpayers fail to pay taxes is crucial, with lack of knowledge and patriotism being key factors.
Governments must invest in boosting tax morale by making taxpayers appreciate that their contribution matters.
