This archive report was first published on 6 August 2019.
Kenya Trails Regional Neighbors in Goods and Services Taxes ¶
Kenya's performance in collecting goods and services taxes has been lagging behind its regional neighbors, with the World Bank estimating that the country is ceding tax revenue equivalent to 3.6 to 3.7 percent of GDP due to VAT exemptions.
According to the World Bank's Kenya Public Expenditure Analysis 2019, released in June, Kenya's ratio of VAT revenue to GDP decreased from 4.5 percent of GDP in the 2014/2015 fiscal year to 4.1 percent in 2017/2018.
Kenya's volume of goods and services taxes as a percentage of GDP stood at 6.5 percent in the period between 2013 and 2017, which is behind South Africa at 10.3 percent, Vietnam (8.8 percent), Thailand (8.5 percent), Rwanda (7.3 percent), and Uganda (7.2 percent).
On the other hand, income taxes as a percentage of GDP stood at about 8.2 percent in the period, second only to South Africa (14.8 percent) among the regional and income level peers.
The disparity is also a pointer to the shortcomings in the tax administration framework, with VAT and excise duties being more prone to evasion due to fake excise stamps worth billions of shillings in manufacturing plants.
The National Treasury faces a delicate balancing act in tax exemptions, which can encourage local production and investments, but also pressure to maximise revenue collection, especially in a country running a large budget deficit like Kenya.
Efforts by the Treasury to institute fiscal consolidation measures have been falling short, and tax revenue has been unable to keep up with expenditure. In the current fiscal year, the country's spending is Sh3.01 trillion, and expects to collect Sh1.94 trillion in taxes.
