This commentary argues that Kenya’s tax debate should move beyond blaming multinational corporations and focus more sharply on local compliance failures, VAT gaps and enforcement weaknesses.
The writer says tax evasion has recently become a public issue after the president addressed it at KRA’s distinguished taxpayers awards ceremony held at the end of the previous month. The piece also invokes long-standing tax theory, including Frederick the Great’s warning that “no government can exist without taxation; the money must necessarily be levied on people” and his reminder that “the grand art consists of levying so as not to oppress”.
At the centre of the argument is the view that compliant taxpayers believe some people and businesses are avoiding their obligations while staying out of the taxman’s sight. The article cites Adam Smith’s equity principle, which holds that every subject should contribute to government support in proportion to ability.
Multinational companies are described as the usual target of criticism over tax avoidance, with some reports placing annual revenue losses from transfer pricing at more than Sh600 billion. The writer says base erosion and profit shifting is a real global problem, but questions the accuracy of the figures often repeated in public debate.
The article also criticises the policy logic behind treating tax avoidance more harshly than tax evasion, saying penalties and interest on avoidance are not remittable. In the writer’s view, that approach appears to favour a criminal act over a moral one.
Drawing on experience advising multinational corporations, the writer says serious firms would not risk “monkey business” because of the legal exposure and reputational damage involved. The more common lawful approach, the article says, is tax planning aimed at managing effective tax rates through loopholes in legislation.
The commentary then turns the spotlight on local businesses and individual taxpayers. It points to a KRA public notice issued in February last year to VAT-registered taxpayers, which called for full and proper disclosure of input VAT and output VAT to support data matching.
That notice was followed by a long list of taxpayers flagged for inconsistencies in their VAT returns. While some discrepancies may have resulted from disclosure and system problems, the writer says others may have been deliberate omissions intended to evade tax.
The article says that concern is reinforced by the arraignment in court in April this year of individuals suspected of masterminding a tax evasion racket involving VAT input claims estimated at KES 7 billion. It describes the crackdown as a justified move, though one that also exposes how long such schemes were allowed to continue.
Beyond VAT, the writer says KRA should also pursue people with PINs who are inactive, as well as those who should register but have not done so. The argument is that tax compliance must be enforced evenly so that no group gains an unfair business advantage by avoiding payment.
The piece notes that KRA has spoken for the last 3 years about installing a data warehouse and business intelligence system linked to mobile money transfers and bank records. Until that system is fully in place, the writer says the tax authority should use the data already available to it.
County government records, NTSA, Lands records, Customs Department data, the Company registry, NSSF, NHIF and records from government agencies that buy goods and services are all identified as useful sources. The article adds that recent efforts to use import and export information to flag non-compliant taxpayers should be expanded and sustained so the tax burden can be shared more fairly.
Mr Khalif is a Finance and Tax Expert
