This archive report was first published on 7 January 2020.
Published on January 7, 2020, Kenya's tax system has long been criticized for its inequitable distribution of tax burdens. The current system assumes that high-income earners can minimize inequalities by paying more taxes, but this approach has been widely disputed.
A more effective way to address tax inequalities would be to raise public expenditure for economic development and deepen social services like education and health. This would strengthen the position of weaker members of society and promote economic growth.
However, the government's policy of collecting as much taxes as possible to avoid heavy borrowing has led to a situation where those with higher incomes are being overtaxed. This takes away money they could have reinvested to create more jobs for others.
One of the major problems in Kenya is tax non-compliance, particularly with excise duty, a levy on products such as tobacco, alcohol, and cosmetics. The problem with this levy is not the rate charged but how it is assessed and collected.
Automation of the tax system can bring fairness, transparency, and administrative ease. The Oklahoma Policy Institute states that a good tax system should meet five basic conditions: fairness, adequacy, simplicity, transparency, and administrative ease.
Kenya Revenue Authority (KRA) has been implementing automated tax systems such as iTax, iCMS, and the Excisable Goods Management System (EGMS). EGMS is expected to reduce problems with tax compliance and improve the efficiency of tax collection.
However, the introduction of EGMS has faced fierce opposition from some manufacturers who are used to not paying full tax. This resistance is surprising because EGMS is technology-driven and consolidates valuable economic information that can be used by the government.
Countries that have implemented similar systems have experienced a substantial increase in tax revenues due to enhanced accountability, transparency, and integrity. If KRA can successfully implement EGMS, it will increase the number of taxpayers paying their fair share of taxes and remove interference.
With the introduction of new systems, the taxman will be able to adequately capture quality data useful in tax forecasting and supporting the understanding of market dynamics. This would portend a myriad of benefits for the country, including supporting planning.
